Italy: how the Meloni government caused panic on the stock market

2023-08-08 15:19:53

It was a surprise announcement that caused panic in the Italian financial sector. While the government of Giorgia Meloni has announced that it wants to levy a 40% tax on the “surplus profits” of banks generated by the rise in interest rates, several stocks on the stock market plummeted on Tuesday, August 8. L’Express explains the reasons for this panic on the markets.

What is the will of the Meloni government?

The will of the executive is to tax the banks’ “surplus profits” of “billions” of euros to offset the cost to households and businesses of soaring interest rates, the Deputy Prime Minister announced on Monday evening. Minister Matteo Salvini.

The rate hikes carried out by the European Central Bank (ECB) have boosted the profits of banks and harmed their customers who are bearing the full brunt of the increase in their borrowing rates, Matteo Salvini deplored after a council ministers. “It’s not a few handfuls of millions, but a few billion. It’s a measure of fairness,” assured the boss of the League, a far-right party member of the government coalition.

“We have been saying for months that the ECB is wrong to raise interest rates,” and this tax “is the inevitable consequence,” Foreign Minister Antonio Tajani told the Corriere della Sera newspaper. “It is not a measure against banks, but it aims to protect families”, he argued, adding that “the measure will last only one year” and will still be the subject of debates in Parliament.

What consequences?

The news spread very quickly. On the Milan Stock Exchange, all banking shares fell. Around 1 p.m. (11 a.m. GMT), the first two banks Intesa Sanpaolo and Unicredit lost 8.6% and 7% respectively. Monte dei Paschi di Siena fell by 10.2%, Bper Banca by 10% and Banco Bpm by 8%.

The government’s announcement took the industry and analysts by surprise. “This is unexpected bad news that triggers a negative reaction from the markets,” commented experts from Banca Akros, estimating that banks’ earnings per share will be cut by 7% on average.

How can the measure be implemented?

The tax on banks’ “surplus profits” will concern the accounting years of 2022 or 2023, a government source told AFP. The 40% deduction will be made either on the part of the net interest income for 2022 exceeding by at least 3% the amount for the 2021 financial year or on the profits for 2023 for which the threshold is set at 6%. The amount of the extraordinary tax may in no case exceed a proportion equal to 25% of the value of the net assets of a bank.

Prime Minister Giorgia Meloni thus intends to mobilize funds for the draft budget for 2024, which risks running out of resources due to the surprise decline in Gross Domestic Product of 0.3% recorded in the second quarter.

This tax could bring in more than two billion euros, according to initial estimates quoted by the Italian press. The revenue from this tax will be paid into a fund intended to finance measures aimed at reducing the tax burden on households and businesses.

Is taxation consensual?

Italian banks, like their European competitors, saw their net interest income soar in the wake of the rise in interest rates, without increasing the remuneration of their customers’ current accounts. Intesa Sanpaolo saw its net profit jump 80% to 4.2 billion euros in the first half. It expects net interest income to exceed 13.5 billion euros in 2023. Its rival UniCredit posted half-year net profit of 4.4 billion euros. The taxation of banks has elicited mixed reactions.

The CISL union sees it as a “fair” measure which “should be extended to other multinationals” in the energy, digital or even logistics sectors.

“It is an extremely controversial tax” which seems to be inspired by Spain, commented Francesco Galietti, founder of the consulting firm Policy Sonar, castigating “a typical populist measure”. Spain’s leftist government last year introduced an exceptional tax on banks scheduled for 2023 and 2024, drawing criticism from the ECB which feared “potentially negative consequences” for the sector.