May 29, 2018
Abandon all hope ye who enter the eurozone debate
With political developments in Italy keeping up tension in the financial markets, the German press has taken a look at the various eurozone countries' exposures to Italian debt, public and private. Data from the Bank for International Settlements shows that French banks are by far the most exposed to Italian debt. Whether Germany comes second at a distance, or third after Spain, depends on which data you look at. But what we found most remarkable about the quality of the discussion is the opening paragraph of this story by Frankfurter Allgemeine. Apparently, the reason why Emmanuel Macron has been pressing for a deal on a European deposit insurance scheme by June this year is so that Germany rescues French banks from their Italian exposure. With such a framing in the paper of record of the largest member state, abandon all hope ye who enter the eurozone debate.
According to BIS data quoted by FAZ, French banks' exposure to Italy is over $300m, of which a fifth is Italian government debt. Half of this exposure of is that of BNP Paribas, which owns Banca Nazionale del Lavoro, though its exposure to Italian government debt is only about a third of the total, or €17bn. FAZ takes comfort in the fact that German banks's exposure to Italian government debt - under $40bn - comes third after that of the Spanish banks. But the overall exposure to the whole Italian economy is the second largest. This chart tweeted by Holger Zschaepitz (@Schuldensuehner) illustrates that exposures have come down substantially from the peak around the time of the financial crisis a decade ago, and that German banks are exposed mostly to Italian corporate debt to the extent that their overall exposure to the Italian economy is the second largest after France's.