The Monte dei Paschi di Siena saga is not just an Italian affair. Revelations that complex financial transactions used by the country’s third largest bank had the effect of hiding losses are causing a political storm in Italy.
With a general election only weeks away, Silvio Berlusconi looks like being the main winner from the political spat. The former prime minister’s camp has attacked Pierluigi Bersani’s Democratic Party, which is leading in the opinion polls, for being close to Monte dei Paschi (MPS). It has also criticised Mario Monti, the current prime minister, who agreed to increase MPS’s bailout to 3.9 billion euros.
The scandal won’t be enough to get Berlusconi back as prime minister. But it could prevent a Bersani-Monti coalition from running the country with a solid majority in both houses of parliament. If so, fears about Italian political risk could return to haunt the markets.
The still-murky saga has also put Mario Draghi under the spotlight because the ECB president ran the Bank of Italy when MPS was getting into such a mess. Giulio Tremonti, who was finance minister in Berlusconi’s last government, tweeted that it was “stupefying” that Draghi had failed to discover or prevent the complex transactions.
The Italian central bank’s defence is that, while some of its supervisors knew about the transactions, it did not know that they were linked to other loss-making operations because key documents were hidden from it. What’s more, even though it was worried about MPS’s weak risk management, it didn’t have the power to fire bank directors, despite Draghi requesting the last Berlusconi government for such authority. Its moral suasion did, though, eventually help remove the old MPS management last year.