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EU came close to OBLIVION: Italian finance head reveals bank crisis left Italy teetering

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THE ITALIAN government has made an emergency intervention to wind up two crumbling banks which threatened to “collapse” their economy and possibly the entire European Union. Veneto Banca and Banca Popolare di Vicenza were both liquidated after an emergency decree was enforced to shield depositors and senior bondholders from losses.Rome’s move follows a decision by the European Central Bank, which on Friday evening declared that the two regional banks in Venice “were failing or likely to fail”.

Italian finance minister Pier Carlo Padoan warned: “If we had let these two banks crumble it would have led to the collapse of Italy”.Speaking to CNBC, he said: “Liquidation in the case of the two Venetian banks is the best possible options to be consistent with European rules, and fully consistent with the aim of preserving retail money, retail savers and depositors and also activity funded by the bank by the banks.”

Mr Padoan added: “The local Venetian economy is the size of the three Baltic states combined, it would have been significant not only to the Venetian banks but also the other banks in the region. “That would have generated a shock on the economy and unattended consequences fidelity and possible contagion.”Support for the EU’s single currency has been waning in Italy as their financial struggle continues.

In recent months leading banking analysts have warned Italy poses the biggest threat to the European Union.Italy has been one of the EU’s financial weak lines for years after racking up enormous debts thanks to bad loans. The state’s GDP is barely higher than when the eurozone was rolled out in 1999 and its working age unemployment rate stands at 12 per cent.Giuseppe Vegas, the president of stock market regulator CONSOB, claimed Italy must prepare itself for tightening of the European Central Bank’s monetary policy.He claimed if Italy were to quit the Brussels bloc it would be “a shock for the entire eurozone” that would “threaten its survival”.

Mr Vegas said ‘quantitative easing’ of the ECB “has reduced the pressure on countries, such as ours, who more than others needed to recover ground on competitiveness, stability and convergence”. But the CONSOB chief went on to say “this hasn’t worked” – adding that Italy had already suffered a 30 per cent drop in competitiveness compared to Germany during the last two decades.

He said: “Inflation is progressively moving close to the 2 per cent target, while the US is already undergoing monetary tightening.”But Mr Vegas also warned the country could now gear up to take itself out of the eurozone if the ECB tightens its purse strings. And he claimed that an “Italexit would be a shock for the entire eurozone, and it would endanger its survival”.The Commission’s number one pointed out that any plans to quit the Brussels bloc would “jeopardise stability, the sound functioning of the financial system and the safeguarding of the market, objectives which fall within the institutional CONSOB”