The European Commission seems to be losing its bite. Since the 2008 financial crisis, the legislative arm of the European Union has developed a fearsome reputation for forcing bailed-out banks into savage restructurings as penance for accepting state aid. Its kid-glove treatment of Banca Monte dei Paschi, however, looks like quite a reversal.
MPS's need for a €3.9-billion ($5.1-billion) bailout, plans for which were outlined in June, is largely self-inflicted. True, the main reason for the shortfall is spiralling yields on Italian sovereign debt, which the bank can't control. But MPS blundered by increasing its holdings of its own government's bonds fivefold in recent years. It also overpaid in its acquisition of Antonveneta, another Italian bank, before the crisis.
From an Italian taxpayer perspective, the rot set in with June's decision to allow the recapitalisation to be done with hybrid debt rather than equity. Rather than take a big shareholding in MPS, the Italian state would receive bonds and an annual coupon. If the bank made no profits – which it may not this year or next – it would have to pay the coupon in shares, meaning the government would end up a shareholder anyway.
But the actual terms, unveiled on Dec. 17, are flimsier. Instead of shares, MPS can now pay the coupon by issuing yet more hybrid debt to the government. As no less an authority than the European Central Bank has pointed out, this increases the interest burden on MPS, making it harder to make the profits that would enable the bank to repay its latest bailout.
By allowing individual states to negotiate exceptions to what are generally thought to be hard and fast rules, the Commission runs the risk of diluting important principles of the single European market. On Dec. 27 MPS said that when it does finally have to pay back its latest bailout, it will have to issue cut-price shares to the government if it does not have enough cash. But the Commission's timidity means that Italian taxpayers are getting a raw deal now.