2016-06-19wolfstreet.com

Senior bankers in Spain and Italy can breathe a collective sigh of relief after Europe's finance and economic ministers decided on Friday to postpone, for at least 18 months, a decision on setting a limit on the government bonds some banks can hold as eligible "risk-free" capital. It was one of four things keeping Spanish senior bankers awake at night. Now, they can sleep a little sounder.

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Italy's public debt is now a staggering 123% of its GDP, much of which is gathering dust on the cluttered balance sheets of Italy's banks -- banks which are so fragile that Bank of Italy Governor Ignazio Visco recently begged the European Union to backtrack on new bail-in rules aimed at protecting taxpayers from having to prop up ailing banks, warning that it may be impossible to stop contagion in a crisis.

The fact that Eurozone finance ministers have once again caved to concerted pressure from both banks and the Italian and Spanish governments is hardly any surprise. Kicking the can down the road is now an official sport in Brussels. Putting off the decision for another 18 months would allow the EU to avoid any inconvenient clashes with the Brexit referendum, not to mention the French and German elections in 2017.

As with many other aspects of post-GFC rescue measures controlled by the developed world financial mandarins (with the ringleaders the US Fed), they simply cannot normalize the asset holding requirements in Europe -- to do so would simply blow everything up. This wouldn't have been the case had the authorities spend the last nearly 10 years cleaning up the insolvencies (at the expense of established institutions who had essentially gambled for decades -- and lost).



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