Italy’s finance minister has warned a British exit from the EU would strengthen anti-European forces in other countries.
“Brexit is a major threat to Europe,” Pier Carlo Padoan told the Financial Times in an interview. “It would certainly damage the UK in the first place, but also the rest of Europe . . . particularly the political consequences.”
The Italian government has argued that the renegotiated UK membership terms prime minister David Cameron agreed with his counterparts in February should be used as an opportunity for the eurozone to integrate further.
“We need to rethink or strengthen the governance model of the EU and the euro area. Europe needs to have ambition, we cannot continue with piecemeal approaches,” said Mr Padoan, whose ministry this year publicly proposed a governance overhaul including a common budget and finance minister for euro members.
But Mr Padoan feared if the UK votes to leave the EU altogether on June 23, it would be a setback rather than a catalyst for deeper integration in the rest of Europe: “It would send a strong message to those who don’t like Europe that Europe can be undone”.
In the event of a Brexit, Mr Padoan signalled Britain would find it hard to retain substantial access to the single market. “Italy would not take a punishing attitude,” he said, fearing “two years of negotiation that probably would not lead to much.”
The single market, Mr Padoan insisted, required “a minimum of agreed rules. If you start saying you only like part of the rules, it becomes difficult”.
“It takes two to tango — and we are 28.”
Mr Padoan also defended his country’s approach to fixing its ailing banking system. Italian banks hold hundreds of billions of non-performing loans on their balance sheets.
The latest mooted solution is the creation of Atlante, a private investment fund set up to “backstop” bank capital raisings and buy junior tranches in securitised assets packaging together NPLs.
There will not be a punishing attitude [but] you cannot just take the rules you like. It takes two to tango — and we are 28
– Pier Carlo Padoan, Italian finance minister
Mr Padoan dismissed as missing the point doubts that the fund is big enough to make a dent in the balance of bad loans. “This is an instrument to kick off a market for NPLs which as of today does not exist,” he said.
The fund is “complementary” to a guarantee scheme for securitised NPLs introduced earlier this year, and to changes in bankruptcy rules to be introduced with immediate effect in the next few days aimed at accelerating creditors’ recovery of loans.
“Three years of recession and a 10 per cent loss [of GDP] in a bank-centric system leaves scars,” said Mr Padoan. “What we are doing is engineer a change in the banking system. We need stronger banks and fewer banks, and this is happening.”
The problem of weak banks will be on the agenda at this week’s meeting of European finance ministers in Amsterdam. Mr Padoan confirmed Italy and France had cosigned a proposal to let the European Stability Mechanism extend credit lines to the new Single Resolution Fund for banks covered by Europe’s banking union.
The ESM, backed by the eurozone’s taxpayers, was set up to bail out governments locked out of debt markets in the crisis, but now is “a pile of money just sitting there. The issue is what to do with that money”.
Mr Padoan also warned against the risk of requiring banks to hold equity capital exposures to sovereigns, also on European finance minister’s agenda this week. Government bonds are currently treated as riskless by capital requirement rules. Changing this could increase borrowing costs for Rome, given the amount of its debt held by banks.
This is a “global issue and therefore should be discussed within the Basel Committee environment”, Mr Padoan said, referring to the forum setting global bank capital standards. “It should be discussed with a lot of attention because if the purpose is to decrease risk, we could get the opposite result.”
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