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EUROPEAN UNION

EU approves bailout of BMPS, the world’s oldest bank

The EU competition commission has approved a 5.4 billion euro bailout of Italy's troubled Monte dei Paschi di Siena (BMPS), the world's oldest bank, as part of a major overhaul.

EU approves bailout of BMPS, the world's oldest bank
The logo of the bank pictured in Milan. Photo: Giuseppe Cacace/AFP

The decision, announced in a statement on Tuesday, comes days after Brussels accepted that Italy could inject up to 17 billion euros ($19 billion) to break up two insolvent Venetian banks.

Public bailouts were supposed to be a thing of the past after the eurozone created a banking union with specifically designed rules to keep taxpayers from having to bail the banks out.

Founded in Siena in 1472, BMPS has been in deep trouble since the eurozone debt crisis and will now be owned by the Italian state, which has ended up with a 70 percent stake.

EU Competition Commissioner Margrethe Vestager said the capital injection had been approved, noting it would “help BMPS meet capital needs” if economic conditions worsen unexpectedly.

READ ALSO: Here's what you need to know about the BMPS crisis

The bailout is part of a rescue that the EU approved last month after BMPS failed to raise capital on the markets last year.

In exchange for the lifeline, Italy must accept a drastic EU-approved restructuring plan for BMPS that reports say involves up to 6,000 job cuts out of a total of 25,000.

The Commission said on Tuesday the plan would involve salary caps for senior managers and a demand that the bank reconfigure its business model toward a smaller retail clientele.

The plan will also see 26.1 billion euros in troubled assets set aside in a so-called “bad bank”.

Weakened by the disastrous purchase in 2007 of the Antonveneta bank, BMPS quickly drifted into scandal when its management team was accused of fraud and misuse of funds.

In addition to the bailout, authorities have also forced the bank's private lenders to become shareholders.

READ ALSO: How Italy's banking crisis has affected life in Siena

EUROPEAN UNION

The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.

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