European bank CEOs at the Institute of International Finance’s (IIF) meetings in Brussels last week expressed lofty ideas about how financial integration can fill the power gap with US capitalism.
It is wishful thinking. The near formation of a government by rival Italian populists Luigi Di Maio and Matteo Salvini is the elephant in the room at the meetings.
Brexit, it seems, has not ended European fragmentation. Consensus is in ever shorter supply, even on the fundamentals of currency union. As a result, the best that European and especially Italian banks can realistically hope for is market complacency on political risk, and perhaps less-stringent regulatory demands.
This might not be a return to the 2011 crisis, yet. Italian president Sergio Mattarella’s refusal of the populists’ choice of finance minister means fresh elections, more instability and possibly another card for the populists to play.
But the populists’ approach to power is making it far less likely that the currency union will complete its banking union. Indeed, their force relies not just on a desire to do away with European budgetary rules but also with bail-in rules, a foundation of banking union.
