Matteo Renzi, the Italian prime minister, has often quipped about the fragility of German banks in an attempt to prove that his own country’s banking woes are not unique but a Europe-wide problem.
On Friday, however, the 41-year-old former mayor of Florence seemed in no mood to take a dig at his northern neighbours over the troubles of Deutsche Bank.
“I am sure the German authorities will do whatever is necessary to avoid the worsening of the Deutsche Bank crisis,” he said during a visit to Jerusalem to attend the funeral of former Israeli prime minister Shimon Peres. “We have always said the EU needs to do all that is needed to resolve the banking situation.”
Mr Renzi’s shift in tone reflects the mixed reactions that the woes of Germany’s largest lender are eliciting in Italy. In Rome, there is certainly some relief that its own banks are out of the spotlight — for the first time this year.
But there is also growing concern in Italy about the potential spillover effect of a German banking crisis for its own financial institutions, which are struggling under the weight of a huge stock of non-performing loans and facing the €5bn make-or-break recapitalisation of Monte dei Paschi di Siena, its third-largest lender, by the end of the year.
“If it weren’t for the enormous systemic risk represented by Deutsche Bank’s weakness, we could smile watching Germany grapple with the same problems that Italy has been trying to resolve under the watchful eye of Berlin for some time,” Andrea Bonanni, a journalist for La Repubblica, wrote in a column on Friday.
For months, Italian officials have been frustrated by Germany’s tough interpretation of EU bank bail-in rules, which limited its options in terms of public intervention to help MPS and more generally help its banks shed their bad loans.
They have also clashed with Berlin over the common eurozone deposit insurance scheme, which was supposed to complete the banking union but is now stalled.
“I suspect Schadenfreude will prevail in Italy, which is stupid,” said one senior Italian banking executive. “The spillover will be great especially for those who want to raise capital. The Italian banking system, being the weakest, is the most affected by contagion.”
Jacob Funk Kirkegaard of the Peterson Institute for International Economics said: “Italian leaders would be wise to bite their tongues a little longer. Reform is coming to Deutsche Bank no matter what, and the bank may well have to raise new capital.”
But he added: “That doesn’t make it any easier for Italian banks to raise new needed capital themselves in the coming months. Quite the contrary.”
Others say the dominant feeling in Italy will be empathy rather than vindication. “Based on the fundamentals, this rampage against Deutsche Bank is excessive, just like the market fury against Italian banks was after Brexit,” says Paolo Garonna, secretary-general of the Italian federation of banks and insurers.
In Greece, which continues to struggle with the EU over the terms of a multibillion-euro bailout, central bank chief Yannis Stournaras said that the Greek and international banking systems were “safe” and that tools were in place to protect them from any impact.
But aside from the psychological reactions to Deutsche Bank’s troubles, Italian officials see an opening to extract concessions from Berlin on a more lenient interpretation of the bail-in rules, and the common deposit insurance scheme, on the grounds that Germany may need to benefit from them as well.
“We believe that problematic cases can happen everywhere and to face these kinds of problems we should complete the banking union,” said one senior Italian official.
“Much has been done in terms of risk mitigation but, in terms of risk sharing, things are going slowly and this is a problem,” he added. “The support mechanisms in the common deposit insurance scheme are temporary and could benefit anyone. I don’t know if Deutsche Bank would need this but without such a protection there is uncertainty in the market.”
Mr Garonna was more blunt: “The important question is whether the European banking union is moving forward or backwards. European governments should all get around the table, like at a conclave, to reach a politically clear decision to complete it, because it’s in everyone’s interests”.
However, some are sceptical that Germany’s position can be shifted. There remains little public sympathy in Germany at the prospect of big bailouts and little political appetite for greater risk sharing with other eurozone countries. And Deutsche Bank is probably still far from requiring heavy state intervention.
“We’re in a stalemate which will only finish with the end of the political cycle,” says Marcello Messori, a professor of European political economy at Luiss University in Rome. “Deutsche’s troubles don’t mean that the Italian banking problems are any better, if anything it makes things worse, it makes the picture even more problematic.”