Are Italy’s Banks About to Explode?

Are Italy’s Banks About to Explode?


How a banking crisis in Italy could reverberate around the world

The value of Italy’s third-largest bank has plummeted by 60 percent since the start of this year. There are signs many are pulling money out of Banca Monte dei Paschi, out of Italian banks, and out of Italy in general. Even if the nation is not hit by a banking crisis imminently, the dire situation in Italy’s banks and its whole economy could still cause a financial disaster in Europe that would reverberate around the world.

We’re not talking a Greece-type crisis here. Italy is the eurozone’s third-largest economy, and the eighth largest in the world. Its economy is over seven times the size of Greece’s. An economic collapse in Italy would put Europe in a crisis far, far worse than the ongoing Greece crisis.

The more immediate roots of the problem go back to the 2008 banking crisis. Italy’s economy was hit hard, especially the poorer south. To this day, southern Italy is still struggling. The unemployment rate there is 22 percent—only slightly below Greece’s. On the island of Sicily, the youth unemployment rate is over 75 percent—far worse than in Greece.

Because of this economic devastation, many could not pay their debts. This is a problem across the eurozone, but it is worse in Italy than in any other large European economy. Around 20 percent of loans are not being paid back. These non-performing loans are worth over €200 billion (us$218 billion).

Europe’s muddling in the face of this economic crisis is making things worse. Elsewhere, governments bailed out struggling banks only to find themselves overwhelmed with debt and in need of a bailout. But rather than address the underlying cause of the crisis—that sharing a currency without sharing a government can never work—European leaders focused on the effect: They simply made it illegal for governments to bail out struggling banks without taking money from some depositors and investors first.

These laws went into force on January 1. They’ve solved nothing and instead are pushing the crisis in a different direction.

(Listen to our Trumpet Hour discussion of this subject at 19:00.)

We saw a glimpse of this in December. The Italian government organized a rescue for four small banks along the lines of the new bailout rules. It ended in one elderly man committing suicide after losing his life’s savings. He had tried on several earlier occasions to withdraw his money, but was refused. Many others have lost out and are angry. The banks are accused of making investments sound like a normal savings account without explaining the risks involved.

This situation will become more common with the new banking rules. Shareholders, bondholders and anyone with over €100,000 ($109,000) in deposits must take losses before the government can bail out the bank. That may sound like a lot of money, but someone’s entire life savings or pension fund could easily come to €100,000. Even a small business could also have that much in a bank—let alone large ones.

Those were the conditions forced on Cyprus back in 2013. It devastated Cyprus’s economy and not only led to people losing their savings, but also to drastic pay cuts as businesses struggled to find the cash to pay their staff. Leaders of the European Union promised it was an exceptional case. Now it is the rule.

There are no good ways to bail out a bank. The old way involved handing taxpayers’ money to wealthy investors, which feels rather unseemly. But the alternative—taking money from the bank accounts of pensioners—isn’t great either. Throw in the fact that in the eurozone, the robbed pensioners live in one country and the abused taxpayers in another, and it’s easy to see how any discussion on how to bail out banks can quickly turn into a heated argument.

The new way of doing things makes the entire banking system more unstable. As Geopolitical Futures wrote, “Banking is about to get risky and complicated in Europe.” If investors and depositors risk losing large sums of money if their bank goes under, they’ll be much quicker to ditch a questionable bank, which makes a bad situation much worse very quickly.

“The smartest investors should be heading for the exits as soon as they sense trouble,” wrote the Financial Times. Under this new bailout system, “action by a handful of anxious investors could conceivably precipitate a crisis that did not need to happen,” it states.

That process seems underway with Banca Monte dei Paschi. Reuters quotes a Milan bond trader who warned that “[e]veryone is trying to get out.” A fund manager warned, “Over the past few days many have been wondering about the pace at which people closed their accounts and sold bank bonds.”

“I wouldn’t call it a bank run but there are definitely outflows,” he said.

Since then, things have calmed a little as the Italian government agreed to a new plan with the EU that will allow the government to provide some limited help to struggling banks. But this merely shifts the burden for some of the problems—it does not solve them. Details are still being worked out, but if the aid is small, it will not help, and if it is large, it will shift the problem to the government—which can’t afford to deal with it.

Italy’s debt relative to the size of its economy is second only to Greece—and it is still borrowing money every year. Meanwhile its economy has been shrinking over the last few years. It cannot afford to bail out its banks. Its deposits-guarantee fund—which exists to ensure that those with under €100,000 don’t lose anything in a bankruptcy—is almost certainly inadequate.

An Italian banking crisis could easily push the whole country into very serious trouble. A truly massive European bailout would be required to fix it.

Even if the crisis calms down again, the non-performing loans remain a major problem. A financial crisis triggered elsewhere could easily push Italy over the edge. It’s a box of gelignite in a room full of explosives—ready to add its “boom” after the first bomb goes off.

But even now, the banking problems are fueling the political divide in Europe. The new bailout rules are Germany’s design—they force countries to raid money from their own business and savers before they come asking for money from German taxpayers. Predictably, Germany is quite happy with this situation, while Italy is not.

“Italy will not stop demanding to have its voice heard,” wrote Italian Prime Minister Matteo Renzi in the Guardian last week. He wrote that the “political and cultural orthodoxy that has monopolized thinking on how Europe should be run [a diplomatic way of saying ‘Germany’s way of doing things’] isn’t working.”

Renzi wants a European scheme to back up troubled banks—which would prevent any meltdown being so calamitous to Italy, and may even prevent a crisis in the first place.

“The eurozone economic crisis has evolved into a political crisis where a growing number of voters oppose the European Union and the political elites who back it,” wrote Stratfor.

Italy’s banking problem threatens to dramatically worsen the euro crisis at the same time as Europe struggles to deal with the migrant crisis. It is becoming more and more clear that the European Union in its current form is not working.

“Europe will be forged in crises, and will be the sum of the solutions adopted for those crises,” wrote one of the EU’s founding fathers, Jean Monnet. Whether it comes to migrants and borders, or banks and the economy, the status quo is failing. Europe must either fall apart and go back to being separate nation states or act more like one superstate with a common border, common border force, common spending policies and common solution for struggling banks.

An economic crisis coinciding with the migrant crisis would tax Europe to the extreme. But it will take this kind of extreme pressure to force the quarrelsome nation states to give up sovereignty and unite together, exactly as men like Monnet saw. The euro crisis will, in fact, bring Europe together—and the next major push in that direction could come from Italy.

For more on where this crisis is leading, read Trumpet editor in chief Gerald Flurry’s article “Did the Holy Roman Empire Plan the Greek Crisis?

The Secret to Australia’s Remarkable Journey

The Secret to Australia’s Remarkable Journey

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Listen to the Trumpet Daily radio program that aired on January 27.

On Jan. 26, 1788, nearly 850 English convicts arrived at Botany Bay, New South Wales. The goal was to establish a home for England’s criminals. But over the ensuing years and decades, and without much forethought and detailed planning, England’s colony in Australia transformed from a fledgling penal colony into a first-rate power and key asset of the globe-girdling British Empire. In today’s program, Trumpet writer Brad Macdonald explains the biblical promise underpinning Australia’s remarkable transformation.

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Putin ‘Probably’ Signed Off on Litvinenko Murder

Putin ‘Probably’ Signed Off on Litvinenko Murder

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A new British inquiry proves that we should ‘fear this man.’

Russian President Vladimir Putin “probably” approved the murder of former Russian intelligence agent Alexander Litvinenko in 2006, according to an inquiry published by the British government on January 21.

The British had been investigating this assassination because it happened on British soil. Officials spent nine years examining evidence, interviewing 64 witnesses, and assembling a 328-page document. The conclusion is basically that it would have been next to impossible for the murder to have happened as it did without involvement from the Russian government—and without Putin himself signing off on it.

That’s largely because Litvinenko was poisoned with polonium-210, a highly toxic and rare isotope. The inquiry says Andrei K. Lugovoi and Dmitry V. Kovtun—both men with ties to the Russian government—were responsible for slipping the substance into Litvinenko’s drink while he was staying at a London hotel.

The use of polonium-210, according to the inquiry, was “at the very least a strong indicator of [Russian] state involvement” since it had to have been made in a nuclear reactor.

Sir Robert Owen, the public inquiry chairman, said the evidence implicates not just Putin, but also Moscow’s fsb intelligence service, which at the time was headed by Nikolai Patrushev: “Taking full account of all the evidence and analysis available to me, I find that the fsb operation to kill Mr. Litvinenko was probably approved by Mr. Patrushev and also by President Putin.”

The poisoning consigned Litvinenko to a painful, 22-day demise. The inquiry says Putin’s government carried it out in order to send a message.

If you know the backstory on Litvinenko, it’s easy to see what that message was.

Litvinenko had fled Russia in the year 2000, saying he was being persecuted. He was granted asylum in the United Kingdom and eventually gained British citizenship.

Before his death, he worked as a writer and journalist publishing material highly critical of the Kremlin and Putin. It is likely that he was also working for British intelligence. From Putin’s perspective, Litvinenko was a traitor. By having him killed, Putin sent a message saying he has no tolerance for turncoats.

This development is important because it exposes the naïveté and error of the common Western view of Putin and his government.

In the January issue of the Philadelphia Trumpet, columnist Brad Macdonald explained:

In the West, many see Russian President Vladimir Putin more as a schoolyard bully than a ruthless tyrant. He’s mischievous and unfriendly, but his behavior, we tell ourselves, is the result of insecurity. If we ignore him, he’ll grow out of it. Many are amused by and even admire Putin’s personality and behavior. He is the John Wayne of world politics: decisive, uncompromising and masculine. He is the antithesis of the soft, politically correct Western politician. He’s traditional, conservative and pragmatic in a world growing ever more liberal, secular and dangerously idealistic.But we must not be deceived by Vladimir Putin. … Evil often has a way of seeming attractive and enticing, right before it destroys you.

The new inquiry provides us with yet another proof of Putin’s ruthlessness. It gives us one more in a long list of reasons to correct the view that Putin is only a delightfully mischievous character.

To understand more about his true character, and its geopolitical implications, read Mr. Macdonald’s article “Fear This Man.”

There Is a Way to Peace

There Is a Way to Peace


And it won’t be brought about by any institution of man.

Listen to the Trumpet Daily radio program that aired on January 26.

Today’s leaders talk about peace but gloss over the insoluble problems of this world. Man has been trying to attain peace throughout history but has never discovered a way to achieve it. Strong nations once fought to establish peace and order, but today most leaders choose to simply talk about peace, assuming the problems will take care of themselves. The Bible says that near the end of this age people will say, “Peace, peace; when there is no peace” (Jeremiah 6:14). One translation of that verse reads, “You can’t heal a wound by saying it’s not there!” On today’s program, Stephen Flurry discusses, from the pages of the Bible, the only path that will lead to true, long-lasting peace.

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Europe Demands ‘a Greater Role for Nuclear Weapons’

Europe Demands ‘a Greater Role for Nuclear Weapons’

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Russian mind games with nuclear weapons mean that NATO has to step it up, write top German think tanks.

Europe wants to improve its use of nuclear power in response to Russia’s invasion of Georgia and Ukraine. Russia has paired its increased aggression and buildup of conventional forces with an expanded nuclear program, and Europe—especially Eastern Europe—is getting scared.

“Russia’s aggression against Ukraine, and Moscow’s associated nuclear threats, have triggered a new discussion in nato about enhancing its nuclear deterrent,” wrote the German Institute for International and Security Affairs (swp), a think tank responsible for advising the German Parliament, this month.

“Some Central European states are demanding a greater role for nuclear weapons in order to more credibly deter further Russian aggression in Europe,” it wrote. nato’s current policy says that it will only use nuclear weapons under “extremely remote” circumstances. These Central European states want that updated to a stronger threat.

Russia has given them good reason to fear. The Federal College for Security Studies (baks), a German government think tank that advises on defense and security, wrote last year that Russia has been playing “military mind games” with its nuclear weapons—for example, simulating a nuclear attack on Poland.

Since 2008, “the nuclear arsenal of Russia has been steadily strengthened and improved,” it wrote. “New ballistic missile systems have been introduced and stocked with more warheads. Modern submarines replaced the models originating from the times of the Cold War. Far-reaching cruise missiles were tested, resulting in a serious violation of the disbarment treaty on intermediate-range missiles.”

“There is a fear that Moscow reduced its nuclear inhibitions threshold and that it will increasingly include nuclear threats in its policy toward its neighbors and nato,” it wrote.

Russian President Vladimir Putin continually emphasizes in his speeches that Russia is a nuclear power. Russian nuclear bombers constantly probe nato’s air defenses.

In response to all this, “[a] debate about revising the Alliance’s nuclear doctrine is likely to be unavoidable during and after the mid-2016 Warsaw nato summit,” wrote the swp. baks agreed, writing, “The question of nuclear deterrence, in the last two decades more of a side issue, is forcing itself into the foreground.”

Just six years ago, Germany’s vice chancellor wanted nato’s nuclear weapons out of Germany. Now they’re there to stay, and some Polish leaders are calling for nato nukes on their territory.

Instead of reducing nuclear arms, these German think tanks are talking about becoming better at using them. “Nuclear-capable nato fighter jets, which can be fitted with U.S. nuclear bombs, have a response time of about 30 days,” wrote baks in a separate article. “This imbalance has led to calls to reduce response times … and to step up military exercises in the use of nuclear weapons.”

“A tighter integration of nuclear weapons into defense planning is also conceivable by more closely linking conventional and nuclear defense and deterrence capabilities,” write the swp. The think tank noted that “the growing role of nuclear weapons” could mean “including nuclear-capable systems in exercises and holding more frequent and more realistic maneuvers.” In doing so, “nato would be following the example set by Russia, which since the annexation of Crimea has demonstrated the integration of its conventional and nuclear forces in a series of exercises.”

Behind this somewhat opaque terminology is a dangerous trend. A nation expects to use conventional forces (tanks, planes, ships, soldiers, etc.) at some point. But nuclear deterrence is the part of the military a nation hopes to never use. By mixing the two together, it is much more likely that a nation will use nuclear weapons.

Italy, Germany, the Netherlands and Belgium all have American B-61 nuclear bombs ready to fly on their own planes. These bombs are variable yield bombs. One variant currently stationed in Europe can be set to give off an explosion 50 times smaller or 10 times larger than the bomb that destroyed Hiroshima.

Many fear that because a smaller bomb will lead to a much smaller number of casualties, It is much more likely to be used. “What going small does is to make the weapon more thinkable,” said former vice chairman of the Joint Chiefs of Staff, Gen. James E. Cartwright.

America is in the process of upgrading these bombs, as part of a $1 trillion upgrade program, into the B-61 Model 12. One important new feature will be the conversion of these weapons into smart bombs. These upgrades are highly controversial. A highly accurate “small” nuclear bomb is a completely different weapon than a massive nuke designed to wipe out entire cities—and it is much more useful.

Whether Europe gets these bombs remains to be seen. America doesn’t plan to deploy the new bomb until the 2020s, and the smart-bomb capabilities require it to be launched from an F-35. Germany does not plan on purchasing any F-35s, though Italy and the Netherlands do. But the fact that America is pouring so much money into upgrading the bombs shows that no one is planning on removing them from Europe any time soon.

The Trumpet has long pointed to the role Russia’s aggression is playing in forcing Europe to unite—especially militarily. “The more bellicose and dangerous Russia grows, the more we must watch Europe,” wrote Trumpet columnist Brad Macdonald in 2007. “Europe’s reaction to Russian ambition is more important than the growing power of Russia itself.”

Europe quickly reversed its defense cuts after Russia’s invasion of Georgia. Europe and nato are in the middle of restricting Russia’s forces, aiming to counteract this threat. As baks noted, “To the surprise of many allies, Germany of all countries, made a special effort to build up new defense capabilities in Eastern Europe.” This renewed focus on nuclear power is the most dangerous manifestation of this trend yet.

This trend could also see America give Europe more control over American bombs In European territory.

“Nuclear weapons are a horrific menace. … the crucial question is, does the United States really have control over those bombs?” wrote editor in chief Gerald Flurry in 2014.

“They remain under U.S. control unless permission is given to hand them over to the host nation in times of war,” he wrote. “However, following a series of blunders over the years, the security of these nukes has been called into question.” In 2008, the United States Air Force concluded that most of the U.S. nuclear weapons storage sites do not meet proper security standards. In 2010, a peace activist was able to walk on to one of the bases and videotape for more than an hour.

Reducing the response times of these bombs and better integrating them with military forces would almost certainly mean giving the host nations more control over them—reducing the number of steps to get these bombs out of U.S. control and onto European planes.

America probably won’t have a problem with that. It completely trusts Europe. But as Europe wants to become better prepared to use nuclear weapons, it is vital to consider whether this is wise.

Even 20th-century history should cause us to take note when Europe starts talking about “a greater role for nuclear weapons.” Russia is unquestionably a dangerous threat. But Europe’s history—both recent and distant—should sound a stark warning on the dangers of enhancing its nuclear power.

For more on the dangers of America’s nuclear weapons in Europe, read Mr. Flurry’s article “Europe’s Nuclear Secret.”

Is America a State Sponsor of Terrorism?

Is America a State Sponsor of Terrorism?

Mark Makela/Getty Images

Ask John Kerry.

The question above could be asked differently, as cnbc did on Thursday. In an interview with United States Secretary of State John Kerry about the Iran nuclear deal and the money the Islamic Republic will receive from sanctions relief, a cnbc reporter asked: “Do you believe that any of that [money will end] up in the hands of terrorists?”

“I think that some of it will end up in the hands of the irgc [Islamic Revolutionary Guard Corps] or other entities, some of which are labeled terrorists,” Secretary Kerry responded.

Notice how vague Kerry was about which entities are terrorists and who labeled them terrorists. Yet every year, his State Department produces the “Country Reports on Terrorism,” which clearly state that Iran sponsors terrorism through the irgc, Hezbollah, Hamas, Palestine Islamic Jihad and the Popular Front for the Liberation of Palestine-General Command, al Qaeda and various Shiite militia in Iraq and Syria.

Some observers estimated that the money Iran will receive in sanctions relief will be somewhere between $100-$150 billion. But Kerry estimated that after Iran settles its debts, it will be left with around $55 billion.

Earlier in the day, Secretary Kerry said that because of all the internal demands in Iran to develop the country, “there is no way they can succeed in what they want to do if they are very busy funding a lot of terrorism.” Kerry makes it sound like the Iranian regime—its mullahs and the ayatollah—wants to help the people of Iran.

Yet Iran sponsored terrorism even under the heaviest of sanctions. It is preoccupied with terrorism because that is its mission. It wants to fund terrorism because that is its primary means to reach its Islamist goals!

Kerry implied that anyone who dreads Iranian terror can take comfort in the fact that Iran’s neighbors in the Middle East might outspend the Islamic nation on defense. He told cnbc: “The Saudis alone spend $80 billion a year on defense. The entire Gulf state community spends $130 billion a year on defense. Iran spends $15 billion a year on its military activities. So it’s so incredibly disproportionate that I believe that working with our Gulf state partners, which we are going to do and which we are upgrading, we have the ability to guarantee that they will be secure, that we will stand by them, even as we look for this potential of a shift in behavior.”

One has to ask why Saudi Arabia is even spending that much money on defense in the first place. Who do Saudis fear the most? Who do the Israelis fear the most in the Middle East?

Israel is under no illusion about this deal, and that’s why Prime Minister Benjamin Netanyahu said it was a “bad deal.”

What will happen when its proved beyond all doubt that it is a bad deal? Notice Kerry’s strongest statement in that regard: “If we catch them funding terrorism, they’re going to have a problem in the U.S. Congress and other people, obviously.” That was it: It will have a problem with Congress and some other people.

Kerry also said, “We are confident that this will not result in an increase somehow in the threat to any partner or any friend in the region.”

The leaders in Israel and Saudi Arabia must be shaking their heads in disillusionment.