'Monte dei Paschi rescue not unproblematic'

Bundesbank chief Jens Weidmann told the Tuesday edition of Germany's "Bild" newspaper that the planned rescue of the world's oldest bank, Italy's Monte dei Paschi di Siena, needed to be checked against possible violations of new banking sector rules EU member countries had agreed in the wake of the global financial crisis.

The bank has been reeling from an overdose of toxic, non-performing loans. It had aimed to raise 5 billion euros ($5.2 billion) from private investors for its recapitalization needs, but the lender admitted it failed to do so last week. Latest calculations by the European Central Bank (ECB) revealed Monday that the lender even needed almost 4 billion euros more for an efficient recapitalization effort.

Anticipating the bank's failure, the government had received permission from parliament to create a 20-billion-euro rescue fund to bail out Monte dei Paschi and other ailing lenders in the southern eurozone country.

New trouble brewing

Rome said it would rescue Monte dei Paschi, but Germany's Bundesbank chief said Tuesday he was not certain whether this should really happen the way it was being planned.

Jens Weidmann pointed out that according to the EU's new and tighter financial rules, a state-funded rescue action was a last resort.

"If the Italian government wants to do that, it needs to prove that Monte dei Paschi is only temporarily in trouble and is in principle a healthy bank," he argued. "Also, state money must not be used to cover any projected losses."

Weidmann said the whole rescue plan needed to be scrutinized. "Should any state money be used to rescue the bank, it should not be paid on the basis of fresh borrowing in face of the already high debt burden in the country," he said.

Weidmann warned that the EU's new financial rules were first and foremost drawn up to protect taxpayers. A state-funded rescue plan for Monte dei Paschi is a very sensitive issue in the bloc because - according to the new rules in place - some 40,000 small investors would also have to make a contribution towards restoring the lender's health. However, Italian Economics Minister Pier Carlo Padoan has promised small investors they'll be protected.

hg/jd (Reuters, dpa)