Italian Government Seeking €20 Billion Backstop

The Italian government moved closer to a potential rescue of lenders including Banca Monte dei Paschi di Siena SpA by seeking permission from parliament to increase the nation’s public debt by as much as 20 billion euros ($21 billion).

The plan is aimed at providing a backstop to the banking system “through public guarantees in order to restore their short- and medium-term lending ability,” Finance Minister Pier Carlo Padoan said following a cabinet meeting Monday night. The funds could also be used “for capital-strengthening programs of banks within recapitalizations that include the sale of shares,” he added.

Monte Paschi Chief Executive Officer Marco Morelli is scampering to find investors to back a private 5 billion-euro capital increase by the end of this year. Should his efforts fail, Prime Minister Paolo Gentiloni’s cabinet has laid the groundwork for a state-sponsored cash injection with the possible sale of government bonds.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.