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Do as I say...

Posted by Richard Saturday, March 26, 2005

Yesterday, as a reader reminded us, was the birthday of the Treaty of Rome, signed as it was on 25 March 1957. In two years time, the Treaty will celebrate – if that is the right word – its fiftieth anniversary.

It is strange, therefore, that nearly fifty years after the signing of a Treaty which, amongst other things, supposedly brought freedom of movement of capital to its member states, we should read today in The Daily Telegraph an account of how one of the original signatories to the Treaty – Italy – still has not implemented that basic provision.

Under the heading: "Banks put Italy's siege mentality to the test", by Ambrose Evans-Pritchard, we learn that Italy is facing "a major battle with Brussels" over moves to block two high-profile attempts by foreign banks to break into its sheltered financial sector, the most impenetrable in western Europe.

It appears that Spain's Banco Bilbao (BBVA) has made a £4.5billion all-share offer for Banca Nazionale di Lavoro, while Holland's ABN-Amro has plans to boost its 13pc holding in Banca Antonveneta to a controlling stake.

These plans, writes Ambrose, have become a test of whether the EU's single market is genuinely open to cross-border bank mergers, or whether national regulators can effectively shut out foreign bidders.

Yet, despite the idea of cross-border mergers being central to the ethos of the Community, we are told that Italy's élites "have reacted with horror to the twin assault." Roberto Maroni, the labour minister, has called the moves "acts of aggression" against the Italian nation. "Italy runs the risk of being gored and cudgelled because our companies haven't managed to gain entry to European markets," he said.

Had his British equivalent uttered something so utterly non-communautaire, one can imagine that the serried ranks of continental politicians would have been quick to denounce perfidious Albion. But, from a senior Italian politician, it goes unremarked except in the business section pages of the Telegraph.

Yet this is not even an isolated incident as, for the past 12 years, Antonio Fazio, "the autocratic governor of the Bank of Italy", has scuttled every foreign bid for an Italian bank. He has also blocked internal mergers, preferring a fragmented network of regional banks. Predictable, his legacy is the least efficient banks in the eurozone.

However, this time Fazio faces the wrath of the EU commission, which is now itching for a fight to show it is serious about breaking down the EU's commercial barriers.

Charlie McCreevey, the single market commissioner, has written a blunt letter to the Bank of Italy warning that Brussels will not tolerate the use of unjustified pretexts to block proposed mergers. It has been taken as a clear threat of legal action at the European Court of Justice.

Fazio has already let a deadline for a first decision slip past this Monday, gaining time for the bank Monte dei Paschi di Siena to start preparing a home-grown offer. BBVA, Spain's second-largest bank, is flush with cash after the Iberian boom of the last decade. It already owns 15 percent of BNL but has now signalled its intent to mount a controlling bid.

Holland's ABN-Amro has repeatedly sought to increase its stake in Antonveneta, which operates in the Veneto region, but has been rebuffed by Mr Fazio at every turn. It has not yet made formal offer.

Ambrose quotes CreditSights, the bond research company, saying: "This is the first serious test of the central bank's resistance to foreign bank takeovers. It could open the floodgates for mergers and acquisitions not just in Italy but across Europe."

The interesting thing is why it has taken the commission so long to take action and why Italy, which is rated as one of the most Euro-enthusiastic states in the Community, is so reluctant to abide by the provisions of a Treaty for which it is so enthusiastic.

The answer is almost certainly that the Italians subscribe to the more general principle of "do as I say, not what I do". But it is this inherent hypocrisy which has done much to erode British support for the "project" which gives lip-service to a "level playing field" that is about as level as the north face of the Eiger.