If Italian households felt more secure about their bank deposits because of EU-level insurance, they would be less susceptible to the siren song of populism.
Given the possibilities for contagion, another European banking crisis could be around the corner. But this is not all Mr Trump’s fault. If you live in an earthquake zone and do not take out earthquake insurance, that is your fault.
There would be no cause for concern had the European authorities put an EU-level deposit insurance programme in place to assure depositors that their money would be safe. Then there definitely would be no run on European banks.
But popular sentiment in Germany and the Netherlands that it would be the Germans and Dutch who would wind up paying for the deposit guarantee scheme won the day. This plays right into the hands of Mr Trump, who is adopting a divide-and-conquer strategy against the EU.
Although the Germans and Dutch are unwittingly acting as Mr Trump’s allies in Europe, his real friend is Matteo Salvini, the Italian interior minister and leader of the far-right League party, whose not-so-secret agenda is to take Italy out of the euro and the EU. He is also an admirer of Russian president Vladimir Putin — and is not shy about saying so.
What might be termed “populist hazard” has become more of a threat to German and Dutch interests than moral hazard, though the monetary hawks in both countries do not seem to have caught on yet.
They continue to inveigh against measures such as quantitative easing — which has proved to be a tremendous success in extricating Europe from the financial crisis — on the grounds that they are mere subterfuges for financing Italian fiscal deficits.
Mr Trump, who is a big fan of Brexit, would be an even bigger fan of “Italexit”. But the EU should not make things easy for Mr Salvini. Brussels must re-build trust in the EU and support for the euro in Italy. It should make the case that membership of the bloc does not only mean pain for ordinary Italians, but also safety, support and reassurance. If Italian households felt more secure about their bank deposits because of EU-level insurance, they would be less susceptible to the siren song of populism.
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