European bank stocks fell significantly in August following a surprise announcement by the Italian government of a new tax.
Stefano Montesi-Corbis | Corbis News | Getty Images
Italy’s shock tax on banks remains controversial, even though the government claims it could be improved.
Europe’s leading bank stock index fell nearly 3% on August 8, after the Italian government announced plans to levy a 40% windfall tax on banks’ profits. This move caught traders off guard and sent shockwaves across the continent.
Market reaction and widespread backlash caused Rome to tone down the plans within 24 hours.
Almost a month later, the government is still investigating how the measure can work, but analysts and policymakers remain critical.
“It is a very stupid law,” Carlo Calenda, national secretary of the political party Azione, told CNBC this weekend.
Calenda, Italy’s former deputy economic development minister, warned the policy could deter international investors.
“It’s something all international investors will look at and say, ‘Wow, this is very dangerous. I don’t want to make an investment here in Italy, long-term investment, knowing that the government can step in and say, okay, I’m going to take a share of your profits,” he told CNBC’s Steve Sedgwick at the European House Ambrosetti Forum.
However, the Brothers of Italy, the leading party in the ruling coalition government, believe that lenders have failed to pass on higher interest rates to depositors.
The latest set of banking results in Europe shows that lenders across the region are enjoying higher levels of profitability as interest rates continue to rise.
Italian Economy Minister Giancarlo Giorgetti said in Ambrosetti that the bank tax “can certainly be improved…but I do not accept that it is considered an unfair tax,” according to Reuters.
Antonio Tajani, the country’s foreign minister and leader of the centre-right party Forza Italia, said the government is stable and the banking tax is not causing tension.
He stressed that it is “right to ask banks for help”, but emphasized that it is important to distinguish between large and small lenders. ‘We have to talk to the banks to see if it is possible to write the text better [of the law]he told CNBC’s Sedgwick.
However, one of Italy’s largest banks is not impressed.
“Now is not the right time to reduce borrowing capacity,” Gian Maria Gros-Pietro, president of Intesa Sanpaolo, told CNBC. “We think communication has not been good,” he added, saying the measure should be a one-off measure.
