(Bloomberg Opinion) — After the financial crisis, Europe’s political leaders put together a complex set of rules to make it harder for future governments to bail out banks. That system is looking so full of holes that one wonders what the point of it is.
Two episodes in a fortnight show that taxpayers are still very much on the hook for the financial system’s losses. At the start of December, the European Commission gave a green light to the rescue of NordLB, a German savings bank, by the governments of Lower Saxony and Saxony-Anhalt; the protection scheme of the German savings bank sector also chipped in.
Then on Sunday, Italy set aside 900 million euros ($1 bn) to recapitalize Banca del Mezzogiorno-Mediocredito Centrale (MCC), a state-owned bank, so that it can save a private regional lender, Banca Popolare di Bari SCpa. Brussels hasn’t yet cleared this rescue plan, but Rome is confident it will. In recent years, Italy has rescued Banca Monte dei Paschi di Siena SpA and Banca Carige SpA. In 2015, the German states Hamburg and Schleswig-Holstein helped HSH Nordbank.
It wasn’t meant to be this way. Between October 2008 and December 2012, European Union governments spent nearly 600 billion euros on recapitalizing banks and other asset relief measures, according to the Commission. The subsequent anger of voters prompted politicians to agree on a single rulebook, putting strict limits on when a government can prop up an ailing lender. The so-called Bank Recovery and Resolution Directive says governments must generally impose losses on shareholders, bondholders and, in some cases, large depositors before they’re allowed to pour in public money.