With fears of Eurozone ’debt-pooling’ mounting, German FDP party leader Christian Lindner has warned single currency’s banking union could become a debt “transfer union through the back door”.
EU governments and financial markets are nervously watching on as a new government in Italy finally takes shape and Mr Christian Lindner has demanded pre-emptive action against Italy.
He told German newspaper Spiegel: “The European Commission should initiate the long-awaited excessive deficit procedure against Italy.”
Mr Lindner said Italy needed to be reminded of the rules, urging “Brussels has watered down rules for far too long and interpreted them according to political discretion”.
The leading politician said this failed to “accommodate reformists” and only served as “an encouragement for the Grillos and Berlusconis in Europe”.
Mr Lindner said an unmistakable signal is needed as Europe can only remain stable and dynamic with economic rationality and respect for the Treaties.
Italy is a cause for concern in the Eurozone
Italy has so many bad loans in the books that a banking union would be a transfer union through the back door.
Sounding a clear warning over Italy’s massive debt pile still standing at 132 percent of their gross domestic product (GDP), he warns Italy is both economically stagnant and overburdened with the second highest debt levels in the EU, after Greece.
Italy’s government in waiting has mooted asking the ECB to forgive €250 billion of Italian benchmark BTP bonds bought under the bank’s so-called “quantitative easing” programme to help reduce Italy’s public debt.
On Italy’s debt predicament Mr Lindner said: ”This is unfortunate, because Italy is one of the founding members of the former EEC and is a close partner and friend for us.”
On the issue of President Emmanuel Macron’s reforms aimed to bring Eurozone finance closer together through a EU ‘rainy-day’ fund, a central European Budget, and potentially the pooling of Eurozone debt, Mr Lindner warned the German Chancellor against agreeing to the plan for a banking union in light of the looming new government in Italy.
He said: ”I call on Chancellor Angela Merkel, together with the Netherlands, Denmark and others, to speak out against a banking union with shared risks at the latest after the formation of a government, which is in the German interest.”
Mr Conte is expected to become Italy’s new PM
The German lawmaker cites the mounting fears in Germany of what’s described by SPIEGEL as “the communitisation of the debts of private crisis banks to the detriment of customers of the savings banks and Volksbanks in Germany”.
And on fears of EU debt-pooling leaving German taxpayers responsible for Italian debt he warns that what started as a Eurozone banking union, could soon become a method of pooling debt through the “back door”.
He said: “Italy has so many bad loans in the books that a banking union would be a transfer union through the back door.”
EU leaders will meet in June at a summit in Brussels to talk through the fundamental reforms in the Eurozone, including progress on a banking union plan.
Additional reporting from Monika Pallenberg