Rome and Berlin have been at loggerheads in recent weeks over an Italian plan to inject taxpayers’ money into its weakest lenders, including Monte dei Paschi di Siena.
In Brussels for a Eurogroup meeting, Italian finance minister Pier Carlo Padoan said his government was “making progress” on the issue with the European Commission.
“The Italian government is working to prepare precautionary instruments that will be used only if necessary,” he said.
But Eurogroup president Jeroen Dijsselbloem saw no “acute crisis” when speaking to reporters before the meeting of eurozone finance ministers, which he chairs.
“There are issues of non-performing loans in Italian banks, but that’s not a new issue,” he said, dismissing calls to address the Italian banking sector crisis as a fallout of the market turmoil caused by Britain’s vote to quit the EU on June 23.
Italy’s lenders have been struggling for months to unload €360bn of non-performing loans — about one third of the eurozone total.
After the Brexit vote, Italian bank shares were the most hit in the eurozone, compounding heavy losses since the beginning of the year.
Other eurozone finance ministers refused to be drawn on the Italian banking crisis.
Commission vice-president Valdis Dombrovskis said yesterday there were a “number of ways” the problem could be solved without harming small investors and financial stability.
Eurozone finance ministers also held a first discussion on the impact of the UK’s vote to exit the EU.
Michael Noonan said the economic hit would depend on the kind of post-Brexit deal negotiated between the EU and the UK.
He said the impact would be “very little” if the UK retains full access to the EU’s single market, but “quite severe” if it was forced to operate by World Trade Organisation (WTO) rules.
Eurozone finance ministers also indicated they are loath to fine Spain and Portugal for breaching EU deficit rules given the current market volatility and the persistent problems in Italy’s banks.
Last week the Commission said that Spain and Portugal had not taken “effective action” to reduce their deficits, despite being given leeway to come down below the EU’s budget deficit limit of 3% of GDP.
EU economics chief Pierre Moscovici said the EU was not out to “damage growth and jobs” and that the bloc’s deficit rules were “not a punishment”.
Ireland does not support sanctions, though Michael Noonan said he agreed with the Commission’s assessment that the two countries had breached EU rules.
“From Ireland’s point of view, it would be sufficient to have the finding that they were in breach,” Mr Noonan said on his way into yesterday’s meeting.
“We’re not interested in having sanctions apply to them.” Mr Dijsselbloem said the EU decision would hinge on extra measures.
“It’s not just about where we are now, it’s also about what extra measures can be taken in the next year, two years,” he said, “and the more those countries can do in the coming period the easier it will be for the Commission.”