πŸ”΄ The History of Italy’s Broken Banking System (w/ Steve Diggle & Grant Williams)

πŸ”΄ The History of Italy’s Broken Banking System (w/ Steve Diggle & Grant Williams)

GRANT WILLIAMS: Italy is a spectacular country,
rich in history and culture. But its economy is struggling, and its place
at the heart of the European Union is under threat. Between the current populist uprising and
the country’s fragile banking system, that threat suddenly looks very real. To try and get a better understanding of the
situation, I’ve traveled to the home of my friend Steve Diggle, founder of Vulpes Investment
Management, so he can help me understand the history and the investment implications behind
the situation unfolding here. This is such a beautiful part of the world
you’ve found for yourself here. I mean, it’s spectacular. There is so much going on in this part of
the world right now. And it feels as though it, again, has reached
some kind of tipping point. STEVE DIGGLE: I think what’s happening in
Italy is probably not widely understood. It’s a complicated story. It comes directly out of a lot of history. And this is something you and I have talked
about a lot, which is that the short-termism in markets means that people very often ignore
these very long-term historical situations. You know, I’ve always been fascinated by history. And a lot of what I have done in my career
as both an investor and a trader is look at these long-term patterns, much deeper, longer-term
context than what’s happening in the next 30 seconds, what’s the euro going to be tomorrow,
where is the S&P going to be in three weeks’ time. I mean, that’s important from a trading perspective. But unless you really understand where something
has come from, which means you really have to look at its long-term history, you really
can’t understand what’s going on. And I think very often you can use history
to teach you an awful lot of things about the current situation, particularly where
people have made horrible mistakes. And I think one of the mistakes people are
making now is they just assume Italy is a bit of a basket case, and that none of this
really matters. They’ll roll over as they always do, and everything
will roll on. It might be different this time. So I’d like to take you to a few of my favorite
places. You’ve never been to Florence, which I find
amazing. You have to go to Florence, which is where
it all began, the center of Italian banking in the 14th, 15th, 16th centuries, and also
one of most beautiful cities on earth. We’ll go to Siena, their ancient rival, also
somewhat contemporary. GRANT WILLIAMS: There I have been before. STEVE DIGGLE: And then we’ll come back and
I’ll show you Cortona, which is just over the hills here. It’s a complicated place. You just wonder, why doesn’t it work better. Why isn’t it wildly successful? Some of the most talented people in the world,
some of the best brands in the world. Why is it such a perpetual mess? And I’ve got my own theories, and we’ll talk
a bit about that when we’re on the road. GRANT WILLIAMS: All right, well, let’s go
see some of it, shall we? STEVE DIGGLE: OK. GRANT WILLIAMS: All right. The first leg of our journey will take us
to the spectacular city of Florence, where modern-day banking began some seven centuries
ago. But on the way, I wanted to find out how Steve’s
love affair with this wonderful country began. STEVE DIGGLE: I’ve been coming to Italy since
I was a teenager. And I’ve loved this part of the world ever
since. I was a real fan of Renaissance history, which
I studied for both O and E level. So when I was 16, 17, came back here to look
at the stuff on a Eurorail. GRANT WILLIAMS: One of those Eurorail passes? You can go everywhere in Europe for like,
what was it, 40 quid or something? STEVE DIGGLE: And I literally was breathless
when I saw the Duomo for the first time. It was just the most amazing thing when you’ve
walked three days through the countryside. Anyway, so I just loved it. People were so nice to you when you’re just
walking along. Someone gave me some tomatoes out of a garden. GRANT WILLIAMS: They gave them or threw them
at you? STEVE DIGGLE: Yeah, she just gave them to
me. It was very nice of her. And you know, people offered me drinks. It was just an incredible warmth of the people,
excellent food, beautiful countryside, and even more beautiful cities, with all of this
extraordinary profundity of ancient art, architecture. GRANT WILLIAMS: Well that’s always what strikes
me, on my rare trips back to Europe. You forget, living in Asia, where everything
is either 1,000 years old or it was built yesterday. There’s nothing in that– And I went see my
dad in Paris a few years ago. Of course, I hadn’t been to Paris in forever. And I was just staring at the architecture. Because I hadn’t seen anything like it. You don’t see it in the US. STEVE DIGGLE: Well, I think France and Italy
are totally blessed in that they have this beautiful, gentle, bucolic countryside– look
at that– and also this incredible beauty by man. So here we are in Florence. And there’s Brunelleschi’s masterpiece, Il
Duomo, Giotto Tower to the left, the river Arno. And there’s the Ponte Vecchio, the Ponte Vecchio
being where all the gold sellers are. So you’ll like that. GRANT WILLIAMS: Yes. STEVE DIGGLE: So the Ponte Vecchio used to–
the reason why the gold sellers are there is because if you had your business on the
bridge, you didn’t have to pay your full municipal taxes because you weren’t actually inside
the city walls. So the reason why London Bridge and these
ancient medieval bridges used to be full of merchants is because they were actually avoiding
paying tax. GRANT WILLIAMS: But this is such a cradle
of finance, this city. I mean, just so many things happened here
that have shaped everything we know today. STEVE DIGGLE: Yeah, it was the financial center
of the Italian state for centuries, and now synonymous with the Medici. But before the Medici, the richest family
in Europe were the Bardis. And they were based here. And they were the people who initially set
up an Italian banking network that went across all of Europe, the first people to really
internationalize banking. And it’s interesting that in Italy– unlike,
say, much of the rest of Europe, where the idea of lending for interest and profit was
banned by the church, so principally an area that the only minorities, especially the Jewish,
were involved in– but in Italy, it was a respectable profession, wealthy families,
international organizations. So the Bardi established this international,
pan-European network, which was their downfall. Because they lent an awful lot of money to
Edward III, King of England, who spent it on building a huge army, and then decided
not to pay it back. So that bankrupted the Bardi. And that was the end of them. And into that vacuum came the Medici, who
increasingly became the most powerful people in this town, with their new innovation, double-entry
bookkeeping. Double-entry bookkeeping– that was the financial
revolution of the 15th century that allowed them to continue to control this vast empire. GRANT WILLIAMS: But what was it about this
part of Italy that made it become such a powerful banking center? STEVE DIGGLE: Well, it’s a bunch of things. I mean, geographically, the Arno was an important
river. We’re right in the middle of Italy here. So everything coming south kind of has to
go through here, everything heading from the north heads here. The city itself was a republic. So it was part of this melange of independent
states. But without any controlling aristocracy, you
had an environment in Florence that just allowed independent wealth to grow up, because you
didn’t have one controlling family. And so increasingly, the Medici rose to be
predominant in this town. But interestingly, they were probably the
first people who established political control through wealth rather than through military
force. So this is a town of merchants. It was a place of business, principally, and
had laws that were appropriate to that, and that didn’t give anyone any advantage. As in, it was considered to be a fair place
to do business. So yeah, but geographically, this is the ideal
place to have a business. It’s on major trading routes, on a river,
in a place where you had a sound currency. So the florin is the currency of Florence–
gold-backed, which of course you’d love– and a currency that became recognized all
throughout Europe as a dependable currency. GRANT WILLIAMS: But Italy, back then, was
a group of independent states. It was more a federation, I guess, than anything
else. STEVE DIGGLE: Not even a federation– not
even. But it had that– it wasn’t a country. GRANT WILLIAMS: That was the one thing it
wasn’t, was a country. STEVE DIGGLE: Well, it wasn’t a country until
1870. In fact, Florence was the first capital of
the united Italy, until it moved to Rome, because there was still fighting down in the
south– so the first parliament, the first government of united Italy. But that was only in 1870. So one of the things that continues to plague
Italy– and you can still see it in Italian politics today– is this tremendous sense
of regional identity over national identity. It’s incredibly strong. So if you’re born and you’re brought up here,
you’re a Florentine. You’re not Italian. You are an Italian, but you’re a Florentine
first, you’re a Tuscan second, and you’re Italian third. And if you’re from Florence, you really don’t
like those people from Pisa, up the road. And this is not just like a friendly rivalry
sort of thing. You really don’t like those people. And the people from Pisa don’t like the people
from Livorno, and the people from Siena don’t like the people from Florence. So these regional identities are incredibly
strong in Italy, and they always have been. So the national identity is a weak thing. So right now, in this coalition government,
The League, right up until just before the election, was calling itself the Northern
League. So it’s a regional identity talking about
how the north continuously subsidizes the south, which is true. The south is much poorer. And if the north was separate and wasn’t constantly
subsidizing the south, they’d all be better off. And they need more autonomy, not just from
Brussels, which they’re very keen, but actually they want autonomy from the rest of Italy. That was initially their agenda. It’s a regional– the idea of a regional political
party. The idea, in a place like France or Britain,
that you’d have a regional identity, a sort of Freedom for Cornwall group being part of
the government, or freedom for Brittany. It’s odd, but in Italy, it makes perfect sense
because these regional identities continue to be incredibly strong. So Italians– it’s a language, it’s a culture,
they all come together to support football. But in very few other senses are Italians
really a nation. And they haven’t been for very long. So it’s a very strong unitary identification,
but it’s not a strong political organization. And one of the reasons why we’ve never really
had strong political forces in Italy is part of this constant fracturing with these regional
identities. So Florence is a great example. I mean, Florence was an independent republic
all the way until the 18th century. GRANT WILLIAMS: The problems we’ve had in
the world in the last 10 years, they manifested in ’08. And that, I guess, woke a lot of people up. Because suddenly there was a focal point for
all the anger and all that resentment. You had a place to focus it, which was initially
on the situation, and then it became on the bankers, and then it became on the politicians,
and then the EU. And it just builds and builds and builds with
no real end outlet. It’s always something else to blame or someone
else to blame. STEVE DIGGLE: Well, we’ve reached a point
now where you have these two very eccentric populist parties, the Five Star Movement and
The League, as we must call them, who don’t really agree on much, but they agree that
they all hate Brussels. And in that, they have found a straw man which
unites Italians, because there is a great deal of anger and resentment against Brussels. And that’s a unifying thing. So right now, you get a sense that the government
at least, and backed by a significant amount of the Italian population, want this confrontation. They actually want a showdown with Brussels. And it looks like that that’s what they’re
trying to provoke with this budget. So it’s an expression of the will of the people. Italy has a perpetual fiscal problem. It’s one of the reasons why Italy had to sort
of crawl in. In 1999, it was very much uncertain whether
Italy would qualify for the European Union. People forget this now, but I remember at
the time– I was working in London– it wasn’t certain. Because Italy’s fiscal situation was so weak. The Germans, and to a lesser extent the French,
were insisting on a relatively high standard of fiscal orderliness in order to qualify
for the European Union and the euro. And Italy was going to be outside. And the politicians pretty much promised anything
just to get into that club. And the consequences of those promises made
in 1999 was that Italy came on a very weak level with a very weak hand. It came in with the lira pegged at the wrong
level, which basically has meant, since 2000, Italy has been walking uphill at a strategic
disadvantage to most of the rest of Europe, especially Germany. And it’s one of the reasons why we’re here
today. The economy has not really strengthened. It’s still smaller than it was in 2008. GRANT WILLIAMS: Yeah, which is remarkable. STEVE DIGGLE: German economy is much bigger,
right. German economy’s a good 15% bigger than it
was in ’08. Now this is still smaller. People feel it. Unemployment’s still at 9.7%. Youth unemployment’s still at 30%. It’s ridiculous. For a country with this level of creativity,
with this level of sophistication, with this level of– GRANT WILLIAMS: And industry. STEVE DIGGLE: To have the fact that over 30%
of young people have no job. And that’s not new. That’s been at this level for a long time. It’s not surprising that you have a very wide
and very strongly felt system of grievance. My point is, yes, Brussels deserves a fair
amount of that. But until you unravel this crippling level
of bureaucracy in Italy, people like myself– and I think Italians– just are not going
to be able to– we’re not going to bother to start businesses. I mean, these young people, they can’t start
a business. It’s just impossible for them, even if they’ve
got some backing. Because by the time they’ve filled in, like,
12 different forms, and applied to six different departments to open a sandwich shop, they
just give up. So Brussels is highly responsible for some
of Italy’s troubles, no doubt about it. And the politicians deserve some blame for
making promises that were going to be very hard for Italy to fulfill. There’s a very wide sense that the European
project has not delivered to Italy. It’s been a burden. It’s favored other people. And it’s time for the Italians to put Italy
first again. Or in the case of The League, to put northern
Italy first again. And I guess, from Florence’s point, to put
Florence first again. How that will play out, I don’t know. This is a new experiment in Italian politics. We have a coalition of some very young people. The leaders of these parties are in the 30s. The parties basically barely exist as we would
recognize political parties. What happens? We’ll see. It’s an experiment. GRANT WILLIAMS: This is absolutely astonishing. STEVE DIGGLE: You’ve never been here before? GRANT WILLIAMS: No, I’ve not been here before. STEVE DIGGLE: Never seen it before. Oh, man, I didn’t realize. Oh, fantastic. GRANT WILLIAMS: No, I’ve not been here before. This is astounding. STEVE DIGGLE: I mean, Italy is full of beautiful
buildings. I mean, St. Peter’s in Rome is really impressive. GRANT WILLIAMS: Yeah, that I’ve seen. That’s amazing. STEVE DIGGLE: But this, for me, it’s just
a different sort of amazing. GRANT WILLIAMS: I can see why you said, breathtaking. I mean, it really is just remarkable– just
remarkable. STEVE DIGGLE: And you know that no one had
ever built a dome like this ever before. They knew the Romans could do it. Do you know the story? No, well, it’s a great story. They knew the Romans could do it because the
Parthenon and so on exist. But no one knew how. No one knew how they had done it. And every time they tried to do it, it would
fall in. So Brunelleschi basically, from first principles,
worked out how you do it. So what you do is– see those arms? GRANT WILLIAMS: Yeah. STEVE DIGGLE: So each of those arms, basically,
is separate. And what you do is like fingers. You get this huge counterweight here. You know, the thing that hangs down inside–
enormous counterweight– and it– GRANT WILLIAMS: Pulls them all together. STEVE DIGGLE: Pulls them together, right,
and it holds them perfectly. The thing that’s holding everything up is
actually gravity. Anyway, then, years later– I mean many years
later– they actually find out how the Romans actually did it. They didn’t do that at all. They just would fill the thing with earth,
build it on top, gradually– because they had so many slaves, they’re like, yeah, just
send you 1,000 slaves to keep– So Brunelleschi thought this was how the Romans did it, but
in fact this was not how the Romans did it at all. GRANT WILLIAMS: Way too clever for his own
good. STEVE DIGGLE: Way too clever. GRANT WILLIAMS: Way too clever. STEVE DIGGLE: So no one had, as I said, worked
it out from first principles. GRANT WILLIAMS: That’s the way to do it. STEVE DIGGLE: Oh, so, that’s the Medici symbol,
right? GRANT WILLIAMS: Oh, it is. It’s the six balls. So even on the churches, right? STEVE DIGGLE: It’s everywhere. Got to make sure you know who’s town you’re
in. Of course, the Medicis they did not seize
power. Interesting thing was, when they were actually
really politically at their apogee, they weren’t involved in banking at all anymore. They got out of the banking business. GRANT WILLIAMS: But they got into the pope
business, didn’t they? STEVE DIGGLE: Yeah, they got into the pope
business. GRANT WILLIAMS: Quite a business to be in. STEVE DIGGLE: Yeah, the pope business and
the owning-the-town business. Politics was definitely a more steady profession
than banking. GRANT WILLIAMS: No, true, but I– STEVE DIGGLE:
Particularly when you were actually obliged to lend money to kings who were not terribly
keen on paying you back. GRANT WILLIAMS: If you can make the pope business
your family business, that’s a pretty good one. STEVE DIGGLE: It’s a rotating thing. It was actually, of course, very expensive
to become the pope. There was an awful lot of bribery involved
in that. GRANT WILLIAMS: Of course. STEVE DIGGLE: But once you were pope, then
yes– GRANT WILLIAMS: You just had to avoid being murdered by the people that worked for
you. STEVE DIGGLE: Have to buy the franchise. GRANT WILLIAMS: Buy the franchise. STEVE DIGGLE: Yeah. GRANT WILLIAMS: Yeah. Like a burger chain– Five Popes. Everywhere you look in Florence, you see history
staring silently, stoically back at you. But Italy is a land of passion. And nowhere is that passion more obvious than
in Italian politics. And that’s creating a potentially dangerous
dynamic for the whole of Europe. STEVE DIGGLE: That stuff’s going to kill you. GRANT WILLIAMS: I know. I know. This Italian politics situation, it fascinates
me. Because as an Englishman, obviously I understand
the desire to get out of Europe. I get that. But I’m really interested– from what we spoke
about earlier, both sides are locked in this problem together, and they’re both a big problem
for the other side. One wants out, one wants to keep them in. If they keep them in, it creates problems
for Europe. If they get out, it creates problems in Europe. How are the different dynamics playing out,
from an Italian perspective? STEVE DIGGLE: I think one of the huge differences
between the British experience– and maybe we should just say the English experience–
and the Italian is, Italy’s a founding member, core member. Initially, it’s France, Germany, Italy. So Britain always has been, both geographically
and psychically, on the outskirts of Europe. Italy is not. Italy’s an absolutely core part of Europe,
and it’s a core part of the European project. So the fact that the Italians now are feeling
that they don’t want to be part of that is a vastly more impactful thing than the fact
that Britain, who were always very marginal in terms of how they would be involved in
Europe, is– I think it’s much more important. The EU without Britain is imaginable. The EU with Italy is almost unimaginable,
and not just cause it’s a big country and a big part of the European economy. But also it’s integral to some of those ideas. So the fact that you’ve reached this situation,
I think, is indicative of a few things. One is just the total indifference of Brussels
to these growing sentiments. You know, the extraordinary thing about Brussels
is just their total level of conviction. There is no doubt– the British vote to leave,
it’s Britain’s problem. Italy is saying, well, we are really very
unhappy with this burden that’s being placed on us. We want less austerity. We want to run this big budget deficit. No, we’re going to reject your budget. Once again, it’s like there’s no flexibility. It’s totally authoritarian. So you have a groundswell of opinion. Yes, it’s a very odd government, this. It’s nothing like we’ve ever seen before. But they all agreed on one thing, which is
they’re going to fight Brussels, and they’re going to fight Brussels on this budget. How we’ve come to this situation is a direct
consequence of the euro. Because the situation for Italy is caused
by this idiosyncrasy in a currency union, which turns normal economics upside down. Normally, economic conditions are strong,
interest rates go up. Economic conditions are weak, interest rates
go down. That doesn’t have in currency unions. In a currency union, you’re locked into this
weird system, which is that when the economies are weak you get punished with higher rates,
and when your economy is strong you get rewarded with lower rates. So Germany has virtually full employment. Unemployment’s down to 3.7%. Interest rates are still at 0. They’re borrowing 10-year money at what, 80,
60 basis points. Italy– economy’s weak, unemployment’s at
9.7%. Interest rates, particularly with this budget
standoff, going up towards 4%– massive spread. So Italy’s being punished by this European
mechanism, which is it’s getting higher rates because it wants to fight, it wants less austerity. But the monetary situation is tightening. They want to run a fiscally more generous
budget, but the monetary system is tightening. So it locks Italy into this system. GRANT WILLIAMS: But this is so straightforwardly
obvious. STEVE DIGGLE: Yeah, but then– just like Greece. How do you escape? There’s no escape. We don’t really understand what happens in
customs unions long term, because we’ve never had a project like the euro long term. It’s just never been done before. Practically, one of the beautiful things about
free market economics is it’s self-correcting. The problem for high prices is– the cure
for high prices is high prices. The cure for low prices is low prices. So capitalism has this self-correcting mechanism. Currency unions seem to have a selfdestructive
mechanism, which is that you either spiral into having an ever-stronger economy with
ever-lower interest rates, which rewards you with a stronger economy, possibly even overheating–
we still haven’t seen that in Germany– but lower rates when you don’t need it. And when you need lower rates, you get higher
rates. It’s not a self-correcting system. It may be a fatal flaw in the euro. Why don’t people want to talk about it? It’s because the euro is part of a European
project. It’s a belief system. It’s not a financial system. It hasn’t been thought out as a financial
system. It’s about a belief in a federal Europe. It’s about a group of people, largely the
better-educated university elites of a country, that have decided this is the way we’re going
to avoid European wars. We’re going to have this ever-moreperfect
union. So the idea of the euro isn’t questioned because
it’s like questioning the European project. If you do that, you’re somehow a bad European,
possibly a bad person. How do you correct this system? It’s not obvious. How do you get lower– Italy and Greece need
lower interest rates. How did you get them? With a currency union, it’s not obvious. GRANT WILLIAMS: But this is the fundamental
problem with this. And I think we can sit here, two guys on a
street corner in Florence, and see what the problems are. They’re obvious. And they haven’t changed. It’s not like this has suddenly become a problem. This has been a problem. Day one, Margaret Thatcher’s last speech to
Parliament laid out exactly what was going to happen. And it’s happened almost exactly as she predicted,
with the problems with not a fiscal union but a currency union. And yet to your point, the EU burghers are
clinging on to this thing, and refuse not just to contemplate where might this be weak,
and how can we shore it up? But no, it is what it is, and you will be
bound by it. Which is why, when you look at what happened
with Brexit, and you look at what’s happening here in Italy, you have a country here which
is just kind of in stasis. It’s muddling along. Everything about this country is fantastic
apart from the fact that it’s a disaster, right? STEVE DIGGLE: I think, in a way, that’s life
in Italy. GRANT WILLIAMS: You’ve studied politics. You are someone who’s spent a lot of time,
and possibly could have had a career in politics had you not chosen to go down the route of
finance. When you look at this through everything you’ve
learned and you understand about politics, are the Italians playing this the right way? Is there another way for them to play it? STEVE DIGGLE: There’s no negotiation going
on here. It’s these are your rules. So what are the Italians supposed to do? Well clearly what the Italians have tried
to do for 10 years has failed, which is why all of the regular political parties have
dissolved. The political parties that were the mainstay
of Italian politics from the ’50s to the turn of the century, they’re gone. They’re not represented in this current government
at all. So clearly the way they tried to play it has
been comprehensively rejected by the people. Now we’ve got these populists who really don’t
have a joined-up manifesto system of government. They’ve just got a very fundamental, inchoate
sense of grievance. All right, it’s a start. I don’t know how it plays out. It doesn’t feel like it’s going to have a
great outcome. Because you don’t have a negotiation going
on. You have increasingly obdurate fixed positions. And I think, when one of the leaders– I think
it was from The League– said, well, if Brussels rejects the budget, we’re going to throw an
even more stimulative budget. That didn’t feel like a negotiation that’s
going the right way. GRANT WILLIAMS: No, but they built their power
base very quickly, which to them obviously says, what we are saying is resonating very,
very strongly with the people. Which is reinforcing that the more we stand
up to Brussels, the more support we’re going to get. STEVE DIGGLE: That’s clearly happening. GRANT WILLIAMS: But what we saw that in Greece
with Syriza when they came to power. STEVE DIGGLE: But they stayed in, didn’t they? GRANT WILLIAMS: But they stayed in. And they backed down once they got power. I don’t know, to me it feels like The League
and Five Star are different. People are people are positioning themselves
as if it’s Greece all over again, and they’ll make a lot of noise, and then they’ll bow
down like good dogs. But this is Italy, this isn’t Greece. STEVE DIGGLE: It doesn’t appear that there
is any debate going on in Brussels about how to accommodate these views. It’s all about enforcement of rules, punishment. And so that’s an empire, right? GRANT WILLIAMS: That’s exactly right. STEVE DIGGLE: That’s an empire, that inflexibility
of empire. It’s the oak, not the willow. It doesn’t bend. It stands until it breaks. And maybe Italy will be the thing that breaks
the euro. Maybe it breaks the European Union. I don’t know. It’s unlikely. But I don’t think it’s just behind the bounds
of possibility. GRANT WILLIAMS: Essentially, you say it’s
unlikely. And we’ve had, what– I think four years ago,
we had a similar period of stress, where everyone said, oh, that’s when Quitaly in Italy came
up. At the foundations of that was the Italian
banking system. STEVE DIGGLE: Yes. GRANT WILLIAMS: Which, we’re sitting here
outside the Medici Palace. And we’re going to go to Siena, and we’re
going to go and look at the banking system a little more closely. Nothing’s changed in that system. We’re four years further on. The banks are under more stress. And I think everybody is assuming this is
2014 all over again. And it won’t matter. STEVE DIGGLE: It might be. GRANT WILLIAMS: But I just get the sense that
because of what’s happened in between, where Italy was almost like a rogue state, Britain
wasn’t even at the party at that point. But now we’re seeing Poland complaining, we’re
seeing Austria, we’re seeing Hungary. We’re seeing disaffection everywhere. And it just feels to me like Italy might,
this time, say, you know what? To hell with it. We’ll take our chances. Can they do that, or is that completely unrealistic? STEVE DIGGLE: Well, I think they could– practically,
leaving the euro is a hell of a lot easier than leaving the European Union. GRANT WILLIAMS: Right, yes. Well, if they’ll let you leave one and not
the other. STEVE DIGGLE: I think the surprising thing
is, given how many obviously clever people are involved in the running of the European
Union, how incredibly dumb the way they’re approaching this situation is. And it mystifies me. I would bet, if you were to sit down in Brussels
and have a conversation with these people, they would completely disagree. They would say, yes, we’ve got some problems,
but everything’s going swimmingly. On we go. There’s a project– the unified military budget,
and unified this. It’s a belief system. It’s a belief system. And the belief system is, we’re going to have
a federal Europe, and that’s going to be the greatest achievement of our lives. We’re not going let these short-term setbacks–
mere economics– affect our project. Italy is divided. Just as Britain is deeply divided over Brexit,
Italy’s deeply divided over it. I mean, there’s still lots of people in Italy
who are very committed to the European Union. I mean, the Five Star Movement and The League
don’t represent all of the Italians. So just in the same way that Britain is divided,
and those divisions could be used and are being used against it– very often, you feel
like Britain is negotiating against itself on Brexit– Italy is divided on this issue
as well. Because it goes way beyond economics. It really goes beyond this “what am I as a
person?” We’ve got these two flags flying here, European
Union next to the Italian flag. A lot of younger Italians would like to think
of themselves as Europeans, not even as Italians, or Florentines, or– GRANT WILLIAMS: Which
is– that’s a significant shift from generations, that you would think of yourself as even bigger
than your country first, as opposed to from your town first, and up. To say, I’m European, then Italian, and then–
I mean, if that mindset takes hold, maybe there is a chance. But it feels like that’s another generation
away before that’s strong enough. I don’t know. STEVE DIGGLE: There are half a million Italians
working in Germany. It’s great they can go to Germany, but the
fact they have to in order to find a decent job, that should worry everyone. What’s wrong with being here? Well, we know what’s going on with living
here. What do those people feel? Well, they’re probably very happy with the
job in Germany. But I know which country I’d rather live in. So where do they go? It’s highly problematic. Because you’re really only being offered two
alternatives right now, which is conflict, which is the way that this coalition seemingly
want to go– conflict, and a unilateral declaration of, we’re going to have our own fiscal policy
which is going to be unanswerable to Brussels, but we’re still tied into its monetary union. That doesn’t sound great. Brussels– you’re going to have your austere
budgets, you’re not going to deviate in any way, and yeah, we’ll maybe continue to bail
out your banking system if you’re well-behaved. I’m glad to say I don’t have a significant
dog in this hunt. Because I think it’s very hard to see how
it plays out. We’ve looked at the Italian banks from time
to time because their stocks are down a long, long way. I mean, a long, long way. You’ve got to assume that Italy will have
a banking system. It will carry on. It’s been here for 500 years. They kind of invented it in this town, just
over there. But at what point do you buy the stocks? I think it’s really hard to work out. So my instinct, although I love this place
and I love to live here, is you want to stay out of it. Because I think anyone who wants to say, this
is definitively what’s going to happen, is just rolling the dice. GRANT WILLIAMS: I completely agree. And that’s why these conversations are interesting,
but there’s no outcome to a conversation like this. You’d have to try and kick around the possibilities. But what you said that struck me when you
talked about the conflict– one of the choices is conflict. And as we’ve seen throughout this part about
the trip, this is a country mired in conflict. This is a country that’s done conflict forever. And conflict is part of its DNA. And so we’ve had a couple of generations–
four generations, maybe– of one united Italy. But at the root of it all, as we’ve talked
about, it’s still this underlying conflict between each other. STEVE DIGGLE: Regional, and in some cases
very local– GRANT WILLIAMS: Town to town, yeah. STEVE DIGGLE: –identities. GRANT WILLIAMS: So it strikes me that the
success of La Liga and of Five Star is in maybe galvanizing that appetite for conflict,
and giving the people of Pisa, instead of a fight with Siena, well, there’s a bigger
guy over here that we can all– we can unite as Italians and have our conflict, and it’s
at those guys in Brussels. I just get this strong sense that they’ve
got a reasonably good chance of success of stirring that up to the point where they go
and punch Europe in the face. STEVE DIGGLE: I think it’s perfectly possible. There’s enough discontent in Italy now, at
many different levels, and from many different people, and for many different reasons, some
of much better thought out than others. And one thing that we haven’t talked about
that we really should talk about is just this very deep and perfectly legitimate Italian
anger at the immigration situation GRANT WILLIAMS: That is something we need to get into in a
lot greater detail. But I’m going to save that for later in the
day, because we got places to go, you and I. STEVE DIGGLE: All right. Who’s going to pay for the coffee? GRANT WILLIAMS: I guess that’s going to be
me, then, isn’t it? On the next leg of our journey, Steve and
I traveled to Siena, home of the oldest continuouslyoperating bank in the World, Banca Monte dei Paschi,
to look at where the country’s fragile banking industry fits into the European mosaic. STEVE DIGGLE: Look at this. The scale of the ambition is amazing. One of the other Achilles’ heels that Italy
has is not just its sovereign debt, it’s this banking crisis. These guys represent a monumental failure
to support business. If you really want a lesson on why a stock
that is falling a lot is not cheap, this is the one.

100 Replies to “πŸ”΄ The History of Italy’s Broken Banking System (w/ Steve Diggle & Grant Williams)”

  1. If Briatin leaves the EU may well collapse. Italy, Greece, Hungary, and other nations are not happy. Even in France, Belgium and Germany lots of people are fed up with it because they feel their societies, cultures, heritages and histories are being discarded.

  2. You guys at Real Vision Finance make some of the most relevant (and classy) content on Youtube these days. Great job and much thanks.

  3. Top notch quality content, as usual, especially from Grant Williams. I love his interviews. He obviously enjoys them a lot and knows how to pick his guests and ask questions. Thank you guys for this

  4. The EU is doomed to failure as soon as the UK get out it is equivalent to the union dropping down to 7 countries and it will collapse.

  5. Great video, content not found on TV channels, thumbs up!

    France has pushed Europe to use a central currency after the war, the German DM was becoming too powerful. They have helped get Italy aboard with GMS to cover up the books to make it happen, so that France was suddenly not the weakest anymore in the project. Your video states that this monetary project has not been done before but the USA has strong rich parts and poor parts, the rich pay for the poor. And this is what the rich countries in Europe are not willing to do, at least nobody has asked them where to go with this European project and if they are willing to become poorer. And worse is coming, now the rich countries like Germany are underestimating the change in car industry, their biggest economic driver, yes I know they have just released a full electric Porsche for 180000 or something, but we are losing on a world scale we cannot imagine yet. Our democracy is killing us now, look at how democratic the brits are and where it leads to, nowhere? Huge loss of time and resources which should be going into productive economic drivers. So indeed the European bureaucracy and supremacy is the biggest cause for its demise, and the borders of Europe are at the weakest countries. Rome 2.0.

    Keep these flix coming, much appreciated.

  6. This is documentary level quality the content, the history even the cinematography is very well done (Italy being beautiful definitely helps with the last one) Real Vision I will watch every bit of content you make if it is this level of quality.

  7. If this is an issue for the Euro how is the monetary problem also not an issue within the United States? Growth varies greatly by state, and is fuelling similar populism. I guess on a more concentrated level, the same dynamic is playing out between cities and the country.

  8. This has to be my favorite Real Vision video yet. Learning about the history of finance and how it impacts our world today is top-notch stuff. More of this style of content please!

  9. I would have to call bulshit on Italians considering themselves more European then Italian, I don't see them routing for other people's football teams during the World Cup

  10. The Catholic bashing got annoying. The Protestant insults about the Papacy illustrated their ignorance of history. Lets just hope they know more about finance than they do theology and the Papacy.

  11. over here in USA we call this movement(not allowing BREXIT) 1 world order/ deep state..clearly funded by soros/rothchilds/and federal reserve

  12. in the end everthing is because we are human, we are emotional, we are not always racional, but if we always do the right thing at the right moment, what are we than?

  13. Man, europe saved Italy! We all did great Belgium, Germany, holland..
    we will see how it will go with great brittain without open trade!!

  14. Italy stole millions biljons of euros from the eurpeans! What are you talking about. Ofcourse they want to get out so they can run away with there dept just like the nasty brittains

  15. Wow Grant, that is an excellent and fascinating 1st episode. Really enjoyed the drone visuals in the beginning and the carpool karaoke scene which followed in the car, you guys should have sung money money money by ABBA.

  16. He mentioned Italy currently has interest rates of around 4% (22:54), while Germanys are at around 0. How is that possible, aren't the interest rates for credits from the ECB fixed for the whole of the EU?

  17. Lots of talk of a belief system with regards to the EU, but no mention of the underpinnings of Grant and Steve's belief systems…

  18. The problem is the bankers. Don't be proud of Florence's history in banking. Fractional reserve banking is inherently unstable and based on a legalized fraud. The only way forward is to find ways to unwind or extinguish existing debt and motivate savings, not debt, in the future, and wrest control from the hands of idiot bankers. The ECB won't be able to correct the problem with increasingly negative interest rates no matter how hard they try. Very low and negative interest rates only motivate people to avoid lending money since the act of lending is being punished. That's obviously not want you want to have happen.

    By the way Italian banking was preceded by the Knights Templar, an order based largely in France. They were destroyed in 1306 and the Italian bankers only rose to prominence after they were gone.

  19. The pace is really fast now for a changing world and the cryptocurrency. The stakes are high, and the trends are not waiting for anyone. Bitcoin analysts are speculating that bitcoin might smash $50,000 by 2020 and I won't want to be told. Currently I make a living off buying and trading bitcoin and I never had to do it all by myself. Rupica Puri has been my guide. As a seasoned trader and my trainer, he has helped me grow a portfolio of 2 btc to over 7 already. He can be reached via Email / [email protected] .com) for inquiries and assistance

  20. "Regional identities" are nothing more than an extension of tribalism. Within these identities, mistrust, fear, resentments take root, leading to conflicts & eventually civil wars. We can either embrace these differences as a tapestry & marvel at their complexities, or see them as a thousand cracks, fissures, destined to destroy the whole.

  21. Wasn't the European union designed by Germany to gain control of Europe and England unifying that control through the euro?

  22. Please do NOT forget that English and German banks have received HUGE amounts of public money (not comparable to the Italian aid) from their Governments to prevent financial catastrophes! Moreover the Italians paid, as many other EU countries, for the Spanish banks to survive… The biggest problem of Italy it`s called: mafia. 5 Stelle (5 stars) movement is the only one that has never been involved in corruption and mafia affairs but It is still week in terms of economic and foreign politics (has also to fight against bias media and established parties). The Lega party is raising thanks only to the anti-immigration propaganda. Italy is not ancient like England or France that`s probably why its level of corruption and political instability. Eu have to change in order to keep peace and prosperity, that was its original mission !

  23. Beautiful Italy Mentioned lomBARDYs & Medici BUT NO MENTION THE Roman Empire – POPE – BLACK NOBILITY – MUSSOLINI FASCISM anD THE MAFIA FFS

  24. The structure of the eurozone can't work. How can governments have the ability to issue bonds in a currency which they cannot print ? Makes zero sense. Bank balance sheets aren't backstopped by a lender of last resort or a central bank willing to play that role in a crisis. The Americans have that in the Fed yet the dumb europeans don't think they need it ? Zero sense.

    With negative interest rates across their interest rate term structure, the Germans, dutch can easily float billions in bonds to mop up the excess liquidity and use it fund a green energy transformation across the eurozone that could absorb the millions of young people out of work. Instead they use the pain caused by the malfunctioning euro to gain concessions from the governments in the peripheral countries that sees them give up key parts of their sovereign decision making authority to a incompetent brussels. With the complicity of the italian elites, who are insulated from poor growth and get to convert their wealth into a proxy-deutschmark currency that won;t be constantly marked down, like the old Lira once was.
    P.S. such a shame Italy isn't more economically vibrant 'cause it's just so beautiful. Just look at Florence…

  25. History. Much underrated and represents a void for most. Extrapolating from a place of ignorance has always ensured an upset/ surprise. Regardless of whether you are for or against, the nation state is set for a come-back and supranationalism is now in a decline with regard to legitimacy. You hit the nail on the head with 'empire'. The inflexible, unassailable EU can't last. It will be brought down in flames in the end. Conflict arises out of the arrogance of Brussels. The refusal of the EC to acknowledge the need for compromise is the beginning and end of it. they wear 'democracy' like a cloak of subterfuge. We can see through it now. Great episode guys.

  26. It’s an authoritarian ideology, of imperialism, the EU, with the exception that it’s not a country, rather, it’s an oligarchy set up by a bunch of unelected, unaccountable thugs, whose proposals at the beginning were camouflaged by ……… (not sure by what)

  27. To blame Brussels for Italian bureaucracy is not justified. Brussels is obviously not the reason for the differences between the Northern and the Southern European economies within the EU and the eurozone. Italy shouldn't have entered the Euro system because the Italian fiscal and political mentality does not fit into this system. Italy is mentally, socially and politically unable to conduct necessary political and economical reforms in time, so it needs a currency which can devalue from time to time like the Lira. Italy wanted to have the Euro but does not want (respectively is not able) to respect common eurozone rules. That is not the fault of Brussels but the fault of Rome.

  28. The quality of this broadcast is off the scale. I'm just not used to political discussions of this coherence because I'm used to the BBC with their dire, dumbed-down political coverage. Why is that Grant Williams can produce a calm, coherent, and informative broadcast, but the BBC (with all their resources – including MY licence fee) cannot?

  29. I always get nervous when someone in the business community talks about "de-regulation" because they never get specific. Let's loosely define "regulation" it's rules that prevent businesses from polluting the water, treat workers with humanity and dignity, not as slaves, make sure the quality of the food you buy is safe, the restaurants you eat in are hygienic, etc. Business people need to stop throwing around the word "regulation" and "deregulation" and get more specific when talking about implementing one and throwing out the other….BTW Lack of regulation caused the Great Depression of 1929 and De-regulation is what caused the Financial Crisis of 2007/2008….. Ironically enough it was the de-regulation of those very same regulations after the first crisis which caused the second…..

  30. The EU became just another method for Germany to conquer Europe and greed made countries, and especially the politicians, fall for it. I hope there is a non disruptive way out of this situation for Italy. If not, viva la revolution!

  31. Interesting, informative and inspiring, BUT a lot of rambling, and inane reflection. It has more of a tour guide, classroom feel then an expose. If that won't get on your nerves, then by all means…otherwise you would be wise to steer clear…

  32. Italian should be smart enough to think that after joining euro their economy is going down hill. Thanks for a fair conversation about ECC. Very informative.

  33. "Why doesn't it work any better" is an easy question to answer. Because the owners which owns most of the world's wealth have very cleverly hidden their loot and continue to rob the rest of the peasants. What happened to the US gold reserves in 1933 and 1971? If the people where to learn of the true nature of the central banking system, there would be a revolution by morning (Henry Ford).

  34. The problem isn't the euro. The Germans didn't want the euro, it was the french that insisted they have it as part of the deal on German reunification. To solve the problem the countries in the euro need to become a single state. That way the single states have the same borrowing costs, the same regulations, enforcement etc so businesses can move and set up freely where labour costs are lower. As a single state, it would be the world bigger than the US economy.

  35. Taken as a whole, the series of Real Vision Finance youtube presentations, are the most intelligent forum for ideas presented online. Each segment is a joy of clarity and comprehension. Bravo.

  36. Grant Willians. You are one of my internet mentors. I devour your information, believe your view is correct, but you call out math, the math that does not add up. Thank you for all you do. You are a true Renaissance man sharing your wisdom. Your intelligence is appreciated. Best wishes.

  37. 33:00 will the EU really bail out the italian banks if it comes to it? EU = german tax payer, and AFAIK they're increasingly grumbling about paying for other people's finances.

  38. for all his rant against brussels if italy were to step out of the union there interest would increase to more than double and present day lira would tank quick. It's the economic strength of the norther countries that allows italy to borrow as cheap as it does currently . talk about an adopted child complain even after they have been offered the world, can't be more italian than that!

  39. Videos of this quality like this are why I decided to get my current affairs from creators on YouTube instead of the partisan and dumbed-down legacy media.

    The arrogance and dogmatism of the EU has created vast misery.

  40. by far one of the best if not the best i have ever watched and wanted to listen throughout without any distraction covering all angles and incorporating the historical facts, i hope these guys go on to produce more of these videos

  41. 25:52 the only point were I got a bit distracted from this fascinating excursion and lost the thread of the conversation…

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