Minister for Finance Michael Noonan has said the Italian referendum result poses no contagion risks to the Irish banking system.
Speaking in Brussels on Monday at a meeting of euro-zone finance ministers, Mr Noonan said there was “no financial crisis coming from the referendum in Italy”, arguing that Irish banks were in a “very strong” position.
The meeting was overshadowed by the resignation of Italian prime minister Matteo Renzi and concerns about the country’s banking sector.
“This morning the markets went down significantly on all fronts but they recovered very very quickly . . . so it seems to me now there isn’t a financial crisis coming.
“There are always concerns when you hear about banks being weak, and some of the banks in Italy are weak, but the president of the European Central Bank, Mario Draghi, is Italian – I can’t envisage a situation that the ECB under Mario Draghi will allow a situation where the Italian banks get into difficulty,” Mr Noonan said.
He rejected the suggestion of any possible contagion effects. “There’s no contagion effect any more. That’s all in the past now.”
Asked whether he had confidence in the Irish banks given that AIB and Bank of Ireland were among the worst performers in European bank stress tests in July along with troubled Italian lender Monte dei Paschi di Siena, Mr Noonan said those examinations had been based on data that was 18 months old.
Adjudication
“If you look at present-day data, the Irish banks are very strong.”
Italy’s referendum, he said, generated an internal constitutional crisis but was not a ballot on Europe. “It seems to me now there isn’t a financial crisis coming from the referendum in Italy. Of course there’s an internal constitutional reform issue. It wasn’t any adjudication on what the Italians think of the European Union. It was in a different space from Brexit or indeed the Austrian referendum,” he said.
Earlier, senior euro-zone figures called for calm after the referendum result.
German finance minister Wolfgang Schäuble denied that another euro crisis was in the offing.
“I don’t think there is reason to talk about a euro crisis,” he said on the way into the Brussels meeting. “The Italians have a lot of experience dealing with such situations and that’s why I’m not concerned.”
Euro-zone chief Jeroen Dijsselbloem, who is also the Dutch finance minister, moved to allay concerns, saying he did not believe it was the start of a new crisis. "There is no reason for that. Political instability makes it more complicated for Italy and the euro zone. But it is a new reality we have to work with.
“The problems that we have today are the problems we had yesterday and they still have to be dealt with and that process will continue as far as I’m concerned,” Mr Dijsselbloem added. “So let’s wait for the outcome of the political process.”
Bailouts
Italy is the euro zone’s third largest economy and there are concerns that political instability there could spark contagion elsewhere. Italian banks are struggling under €360 billion worth of non-performing loans, equivalent to more than 20 per cent of the country’s GDP.
Monte dei Paschi di Siena, the country’s third largest bank, had already been in the midst of a recapitalisation project by trying to convince investors to convert bonds into equity.
Shares fell in early trading by 2.6 per cent as markets cast doubt on the investment plan.
While the government could move to shore up the bank, Italy has already clashed with Brussels about securing an exemption from new “bail-in” rules. These effectively prohibit state bailouts of banks and instead oblige bondholders, including unsecured depositors, to take a hit.
Among the possible contenders to succeed Mr Renzi is finance minister Pier Carlo Padoan, a well-respected figure in euro-zone circles who pulled out of Monday’s meeting.
