Eurobonds possible solution in “extraordinary times”, says Intesa CEO

Europe needs eurobonds, which would lower the cost of borrowing and discipline eurozone markets, breaking a vicious cycle of growing debt-to-GDP ratios, according to Enrico Cucchiani, chief executive of Italy’s largest bank Intesa Sanpaolo.

In a letter to the Wall Street Journal, Cucchiani (pictured) asked for concerted effort on behalf of Europe’s political leaders to find real long-term solutions to the eurozone crisis which will only with deeper economic integration.

“The next months, if not weeks, will determine what happens to Europe in the next decade. Unless we want to remain in thrall to volatile financial markets, where rationality is a slave to fear, we deserve and expect our political masters to do better,” he wrote.

According to Cucchiani, we “live in extraordinary times”.
On Monday, shares in the Italian banking sector opened up 2.6% and were up 4% early in the morning, following the news that Spain’s banks were going to be bailed out and the Italian banking index was down by 6.5% when the market closed.

“The real-estate bubble has left Spanish banks with their balance sheets in tatters. In a shrinking economy with no prospect of trading its way out of difficulty, the Spanish government was on the hook to bail out its banks and had little realistic prospect of finding the funds to do so without European assistance,” he wrote.

This is in contrast with the situation in Italy, where the banks are well-capitalized, with strong balance sheets, low leverage, strong funding capabilities-at reasonable prices, thanks to a wealthy and reliable retail-client base-and have good liquidity.

“Italy enjoys one of the world’s highest wealth-to-GDP ratios and its households are not indebted. The Italian budget deficit is among the lowest in Europe and the country has a rare primary surplus that is expected to be confirmed in 2012 and further improved in 2013, when the government is set to achieve a balanced budget,” he wrote.

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