by Steve H. Hanke
The CATO Institute
On June 23rd, the voters in the United Kingdom (UK) turned a collective thumbs-down on the European Union (EU). The Brexit advocates won the day, shocking the establishment and temporarily unsettling the markets. It also poured fuel on a simmering Italian fire — a fire that could result in an Italian, as well as a Eurozone, doomsday scenario.
The results of stress tests for European banks (reported on July 29th) showed that Italy’s Banca Monte dei Paschi di Siena (MPS) was the only European bank (of the 51 tested) to have its capital wiped out in the stress test scenario. Following the release of those results, Monte Paschi announced it would raise capital by issuing stock, and the Italian treasury indicated that there would not be a bailout of Italian banks. In addition, Fabrizio Viola, MPS’s CEO, got the axe and was replaced by Marco Morelli. So, the stage is set to raise €5 billion in new capital and dispose of about €30 billion in non-performing loans at MPS.