What other governments can learn from Italy’s windfall tax saga
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What other governments can learn from Italy’s windfall tax saga

The political response to rising bank profits should focus more on debt distress than on deposit rates and taxation.

Dominic O'Neill on Europe 1920px.jpg

Italy’s new windfall tax on banks comes as many governments are searching for a political response to the spectacle of rising bank profitability at the same time as rising consumer pain, partly on the back of higher borrowing costs.

Italy is not the first country to have announced a new tax on higher bank profits since central banks started to hike rates last year, nor is the introduction of these taxes restricted to the left or right politically. Spain, Hungary and the Czech Republic have already announced similar levies.

Yet the stakes are higher in Italy, and not just because of the clumsy way the politicians went about announcing the policy.

Italy is one of the eurozone countries where banks see the biggest short-term boost to their profits from higher central bank rates because of the relatively high proportion of floating-rate lending. Many borrowers there are more vulnerable than those in countries such as Germany and France, which have higher levels of household wealth.

Even before this new tax, investors generally perceived Italy’s banks to be riskier than the European average.


It is almost impossible to measure the impact of taxes like this on credit supply because there are so many other factors at play.

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