Scandal at world's oldest bank upends Italian elections
By hiding losses of hundreds of millions of euros, the 540-year-old Monte dei Paschi di Siena has threatened to trip up the leading Democratic Party – to Silvio Berlusconi's benefit.
A scandal engulfing the world’s oldest bank has emerged as a potential game changer in Italy’s national election, threatening to drag down the leading party in the polls and give a critical boost to Silvio Berlusconi’s bid to regain office.Skip to next paragraph
In Pictures Look Who's Back: Berlusconi
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Monte dei Paschi di Siena was founded in 1472, 20 years before Columbus discovered America, but its centuries-old reputation has been severely tarnished by a still-unraveling scandal over derivatives deals worth hundreds of millions of euros and hidden by the bank until brought to light in recent days.
The derivative deals could cost the 540-year-old bank losses of up to €720 million ($970 million). What makes it so politically damaging is the bank's ties to the center-left Democratic Party.
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The bank – located in Siena, a Tuscan city that for decades has been dominated by the Democratic Party – is owned in large part by a "foundation" run by local power brokers, including Democratic Party officials. As revelations about the bank's obfuscation of its losses have come out, so, too, have accusations that party representatives in the city – including a succession of mayors and members of the bank’s board – should have had more oversight over Monte dei Paschi’s financial deals.
Polls show the Democratic Party is currently leading the race toward the election of Feb. 24-25 with 34 percent of votes, compared to the 27 percent attributed to Mr. Berlusconi’s center-right People of Freedom party.
Critics say the decades-old relationship between the bank and the center-left was far too cozy and led indirectly to the current scandal.
“Many aspects of the scandal remain obscure,” said Tito Boeri, an economist at Bocconi University in Milan, in a front-page editorial in La Repubblica newspaper. “But one thing is certain. This affair was born of a system of power created by the intertwining of local politics and banking institutions.”
Pier Luigi Bersani, the leader of the Democratic Party, has insisted that his party bears no responsibility for the banking mess.
But Mario Monti, the technocrat prime minister who is contesting the election as the head of a centrist coalition of small parties, dismissed those assurances and went on the attack.
“The Democratic Party is involved. It has always had a lot of influence on the bank and on Siena’s political life,” he said.
Political interference in the bank’s affairs was “an ugly beast,” he added.
A backlash against Monti?
Mr. Monti may be trying to make political capital out of the bank’s woes, which have dominated the front pages of Italy’s newspapers for a week, but the scandal is also affecting his electoral prospects.
While Monti is now criticizing the bank scandal, his government has agreed to come to the aid of the troubled bank with a €3.9 billion ($5.3 billion) bailout.
With the rescue now shown to be underwriting the bank's shady deals at a time when the government's tough austerity agenda has led to deep cuts in government spending, many Italians are furious with Monti, whom they see as an out-of-touch, privileged representative of high finance and big business.
The prime minister, who is wealthy in his own right, is a professor of economics and spent many years as a European Commissioner in Brussels.
Beppe Grillo, a former stand-up comedian who leads the maverick, antiestablishment Five Star Movement, which is also contesting next month’s general election, said, "I don't see why we should give almost €4 billion in public money to cover up a bunch of thieves."
When Monti visited a region of central Italy on Sunday that was badly hit by a recent earthquake, he was met by protesters expressing their indignation that he had authorized such a huge sum to the bank when they were still waiting for help with rebuilding their shattered homes. “Money to the bank, yes, to the earthquake survivors, no!,” read one large placard.
The buck-passing and exchanging of insults has intensified what is already a febrile political atmosphere.
Monti vs. Bersani
While the Democratic Party is still expected to win the national election, it will probably not have an outright majority, raising the likelihood that it will have to forge an alliance with Monti’s centrists.
But the scandal in Siena has caused so much bad blood between the two political groups that that may be easier said than done, increasing the risk of an unstable, perhaps unworkable, new government.
Meanwhile, Berlusconi has managed to increase his party’s voter support significantly since Christmas, and on Monday he was exultant about the bounce in the polls.
“Our figures confirm that we have managed a spectacular recovery – in less than a month, an increase of more than 10 percent,” he told an Italian news agency. He promised that recovery would continue over the next month.
The banking scandal has had a major impact on Siena, an ancient walled city that is invaded by throngs of foreign tourists each summer.
Monte dei Paschi is the city’s biggest employer and has a charitable foundation that between 1995 and 2010 doled out around €2 billion to cultural associations, sports clubs, and other worthy causes.
So great was the bank’s largess that it was known to Siena’s 55,000 inhabitants as “Babbo Monte” or “Daddy Monte.”
With the bank engulfed in the derivatives scandal, many Sienese now fear the end of an era, with much collective belt-tightening ahead.
The bank has already announced that it will have to cut the previously generous grants it gave to Siena’s Serie A soccer team, its basketball squad, and the Palio, the famous horse race held twice each summer in which bareback riders hurtle around the city’s main piazza.
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