Missing billions, shady finance, body-snatchers and a murder investigation.

Is it a new Netflix series?

No, it’s banking, Italian style…

Recently we have had confirmation that the proposed acquisition of Mediobanca by Banca Monte dei Paschi di Siena (MPS) will be completed. This amounts to the apparently inexplicable phenomenon of one of Italy’s best banks being taken over by what is, arguably, the country’s worst. Read on for proof that truth is certainly stranger than fiction in the world of Italian banking.

Banca Antonveneta, at the time a moderately important domestic bank, had only been acquired by ABN Amro in 2005 as a result of the bankopoli scandal.

This is a whole other story involving market manipulation, a corrupt Governor of the Bank of Italy (the only one ever to have been forced to resign) and an investor group that nicknamed itself I furbetti del quartierino (the local hustlers) – but I digress. Antonveneta ended up in the hands of Spanish group Santander as part of the ABN Amro takeover and the asset was assigned a value of €6.6 billion, yet it was sold a few days later to MPS for €9 billion. The ridiculousness of this situation was summed up by one of the analysts present when the deal was announced. He posed this simple question to MPS management: “Did you even negotiate the price for five minutes?”

Whilst officially ruled to have been a suicide, there was plenty of speculation that other, darker forces were involved. Of course, as is so often the case in financial frauds, lengthy court proceedings resulted in acquittals on criminal charges for all concerned.

Now, if the sordid story finished here with the collapse of MPS, the next chapter could not have been written, but of course politicians never want to let a good crisis go to waste and banks are always fun political toys.

Amongst the state’s interventions to prop up MPS, we can highlight the issuance of guaranteed bonds (Tremonti Bonds, named after the finance minister of the Berlusconi era, and then Monti Bonds, named after technocrat PM Mario Monti), subsequently repaid during rounds of capital increases that left the state on the hook for about €7 billion by the end of 2022. Subsequent equity sales brought in about €2.7 billion and left a remaining stake of about 12% in MPS. Following the takeover of Mediobanca, the state’s shareholding in the combined group has now been diluted to under 5%, currently worth somewhere over €1 billion. Not a great return on its investment so far.

To give you a taste of the kind of deal Cuccia was famous for: when FIAT was in grave financial difficulties in the ‘70s, Cuccia arranged for Gaddafi’s Libya to buy a 10% shareholding – it wasn’t a good look for FIAT’s Gianni Agnelli, who was rather happier in the company of friends like Henry Kissinger, but needs must. It’s not surprising that Cuccia was generally considered to be the one pulling the strings that made the stock market move – a point that was made rather morbidly when his corpse was stolen from its grave on Lake Maggiore and held to ransom. The demand, aside from cash, was that the Milan stock exchange index had to regain the level of 50,000 points (+35%!) by the end of the year. This didn’t happen, so evidently there were at least some limits to the man’s power.

The question of course is: why has this transaction occurred?

The following is from the official MPS press release following the acquisition:
The new Group structure is aimed at achieving strategic and profitability objectives and at fully achieving industrial synergies so to maximize value creation. This configuration is designed to enhance the distinctive expertise of Mediobanca and its professional resources, within a specialized operating model.

Right. This type of communication is technically known as a supercazzola in Italian. Don’t worry about the lack of subtitles – nothing he says makes any sense, which is sort of the point…

The sad reality is that Mediobanca, aside from being one of the crown jewels of Italian finance, sits atop another crown jewel: a 13% shareholding in the insurer Generali, a stake currently worth about €7 billion. It may well be that the dismemberment of Mediobanca and Generali and the distribution of value to its shareholders will be part of the Italian government’s strategy to promote nationalist capitalism. It’s hard to resist the temptation to say that Cuccia, who studiously avoided political interference, will be rolling in his grave (yes, his body was eventually returned to its rightful resting place).

New rules from 2024

Firstly, if you have already qualified for this regime under an earlier version, this article will not be relevant for you. There are, however, some transitory arrangements for people who became resident under the regime in the 2024 tax year but had purchased a property in Italy by the end of 2023.

If you think this might apply to you, then bring it up with your tax adviser to see which version of the regime applies to you.

What does the benefit consist of?

• A 50% reduction in taxable income for a period of 5 years, starting with the year the individual takes up residency in Italy;
• It is possible to increase this reduction to 60% if the individual has a child under the age of 18 living with them in Italy.

What are the requirements?

• The individual cannot have been a tax resident in Italy within the 3 tax years prior to taking up residency;
• This requirement increases to 6 or 7 years when there is continuity in the employment relationship (e.g. an inter-group transfer) – the 7 year rule applies when the individual was working for an Italian company in Italy before moving abroad;
• Commitment to remain a tax resident of Italy for at least 4 years;
• The work must be performed primarily in Italy;
• Qualification or specialisation requirements must be met (generally speaking you must have a university degree, be specialised by a certain amount of professional experience or be involved in certain types of research).

What are the limitations?

• Maximum income able to benefit from the incentive: €600,000p.a.
• Certain types of income may be subject to exclusion for freelancers, in particular any passive income streams like royalties. The general rule is that the individual must be engaged in “arts and professions”. Sole-trader business income would also be excluded.

To sum up the critical points:

• If you have already been a resident of Italy in the past, make sure you understand the minimum period of residency abroad that applies to you;
• Check if you satisfy the qualification or specialisation requirements;
• As a freelancer, make sure that your particular activity or parts thereof would not be excluded;
• Watch out for clarification of the pension contribution requirements.

If you think this might be of interest to you, don’t hesitate to get in touch. I can’t give you a tax opinion, but I can discuss living in Italy more generally and can help with your overall planning, including getting appropriate professional advice as necessary.

It’s time to pay (even more) attention!

We all know that we have to be careful when we are dealing with financial matters, especially when we are online.

I appreciate that this isn’t news to anyone, but it is easy to become complacent, as well as to fall behind in our awareness of the sophistication fraudsters have available to them in the era of Artificial Intelligence. I honestly think that we are all vulnerable to frauds, but if we have the humility to admit this, we can better protect ourselves against the most common pitfalls.

I recently watched a webinar made available by Cazenove Capital in the UK and whilst there were things in it that I already knew, I must admit that it also opened my eyes to how frauds are developing as well as reiterating what our best practices should be online and when dealing with financial matters generally.

I would strongly suggest that everyone takes the time to watch the full webinar, but here are a few bullet points that we all need to reflect upon:

• The golden rule in life is that if something seems too good to be true, it most probably isn’t true. However, human nature means that it is a good idea to be reminded of this fact on a regular basis.
• Most frauds are still relatively “low-tech” and involve things like hacking e-mail accounts – the fraudster may monitor e-mail traffic for a while before finding their opportunity, maybe by sending messages from your e-mail account to financial institutions you deal with. Two-factor authentication is an excellent protection against this possibility – if you don’t have it set-up on your e-mail accounts, do it now!
• Be careful clicking on links in e-mails you receive! These communications seem ever more credible nowadays and can easily trap the unwary.
• Any financial transaction that someone is urging you to carry out in a hurry should instantly raise a red flag. If you are being pressured to transfer funds, even by someone you know, hang up the phone, take a few deep breaths and call the person back on a number you know can be trusted. If you aren’t sure what to do, seek counsel from someone you trust who is not connected to the situation at hand. Deep-fake calls are a possibility (where it will appear that you are speaking to someone you know), but there are also cases where people have been contacted by complete strangers who claim that a family member is in trouble and needs money transferred in a hurry.
• If you do expect to have to make urgent payments to someone – maybe a family member or a business associate – use code-words or agree a protocol that only you and the person concerned will know. Agree in advance which accounts any payments will be made to. SEPA transfers in the EU will now confirm the identity of the beneficiary account holder – if your bank flags up any discrepancy between the name you have entered as beneficiary and the actual account holder, take time to check!

What is Spectrum doing to protect me?

For some time now, all Spectrum advisers are required to conduct video calls or in-person meetings when processing withdrawal requests from any investments we intermediate. The fact that withdrawals generally take some time before being paid out also takes away the threat of panicked decisions being made. Of course, one day deep-fake videos will likely become a reality and so even video calls may not be trustworthy, but for today this procedure will protect against all but the most sophisticated fraudsters (and these aren’t the ones who are targeting the likes of us – they will be defrauding multinational institutions).

We must make our job that of being a harder nut to crack compared with those around us. Rather like home security alarms: they will not be sufficient to stop the world’s most sophisticated thief, but they will be enough to make the opportunistic criminal move on to an easier target.

If you find yourself confused or worried about any of the above, please don’t hesitate to give me a call to discuss. The more we are aware of the risks we face, the better we can protect ourselves.

Changes and Complications

As many of you may be aware if you read these updates, 2024 brought in changes to the concept of tax residency in Italy. We’ll be looking at the changes from the point of view of an individual but do be aware that they apply also to corporates and other entities.

Towards the end of 2024 (yes, more than 10 months after the new rules came into effect!) the Italian Tax Office, the Agenzia delle Entrate, published a 30-page circular to clarify the evolution of various concepts, which in its turn prompted the publication of various articles and guides on the subject. Let’s dive in and try to make sense of the situation.

First, though, I must preface today’s article with the following disclaimer: this is a complicated area and I am not an expert on the subject, so please make sure that you get proper advice before making decisions that will potentially affect your status as tax resident. Taking advice is really the only way for anyone who finds themselves in a grey area to gain some comfort, because unfortunately the Agenzia will not provide an advance ruling on matters of tax residency: they’ll tell you what they think if and when they decide to check!

I think it is probably useful to have a quick look at how the letter of the law itself has been modified (please note that these are not official translations):

The new text may seem somewhat similar to the old text but it is, in fact, an example of my general rule about life in Italy: things will only change to the extent that they can be made more complicated!

Let’s start by looking at the distinction that has been made between the concept of domicile as per the Civil Code and domicile for the purposes of establishing tax residency. The Italian Civil Code defines “domicile” as the place where an individual has established the centre of their business and interests. This may or may not coincide with their place of residency, which is defined as the usual place of abode. So we have a first distinction: domicile, for tax residency, now means where your personal and family relationships primarily develop and not, as before, where your business and interests were based.

Taking a step back, we can say that up until 2024, you would be considered Italian tax resident if any one of the following was true for at least 183 days in any given tax year (which in Italy coincides with the calendar year):

• You were enrolled as a resident in your local comune;
• You had your domicile (civil code definition – i.e. your centre of business and interests) in Italy;
• You were resident (i.e. you had you usual place of abode) in Italy.

From 2024 on, the criteria are as follows, referring always to the minimum period of 183 days in any given tax year:

• You were resident (i.e. you had your usual place of abode) in Italy;
• You had your domicile (new tax code definition – i.e. where your personal and family relationships primarily develop) in Italy;
• You were present in Italy, counting fractions of days as well as whole days;
• You were enrolled as a resident in your local comune – this final criteria now being a rebuttable presumption unlike before.

Another important change is the focus now put on your physical presence in Italy. Before 2024, you could own a property in Italy and spend more than 183 days a year there, yet potentially maintain that your usual place of abode was outside of Italy (think of the situation where you maintain a substantial property in another country where most of your social and financial connections are). This possibility has now been precluded, making counting the days an important task in order to avoid being considered Italian tax resident.

The rebuttable presumption of being enrolled as a resident will depend, according to the circular, on being able to prove that none of the other three criteria were applicable. As always, maintaining clear documentation to support any interpretation you are applying to your particular situation remains of prime importance.

There may of course be situations where an individual appears to be tax resident of two countries and in these cases it will be important to look at any double-tax agreements. These will contain “tie-breaker” rules which often come down to the concept of the individual’s primary place of abode. Again, these are complicated areas and careful planning is required in order to give you confidence in your position. Please don’t hesitate to get in touch if you would like to discuss your situation; I can provide contacts with professionals who can help you to make sense of all the above.

If you follow Italian media reports, you may have picked up on the idea that a one-off wealth tax may be on the way to help lower the levels of government debt.

It probably comes as no surprise that Italy has a long history of over-promising and under-delivering when it comes to reducing its debt levels. If a picture is worth a thousand words, then the graph below shows how each budget forecast (dotted lines) promised a reduction in the ratio of Debt/GDP, whilst the actual level (solid red line) generally heads in one direction only.

Of course, the Debt/GDP ratio is one thing, the absolute level of indebtedness is quite another. I note with some uneasiness that over the last 20 years Italian Government debt levels have increased by almost 100% whilst nominal GDP has only increased by around 60%. Soon I fear that Italy will cross the threshold of €3 trillion in debt. That’s €3,000,000,000,000 for those who like lots of zeros.

Is a wealth tax a likely route to try and bring the public finances back into line? Italy has seen this sort of thing before, and the mention of a wealth tax (una patrimoniale) is enough to provoke any Italian who had a bank account at the time to start grumbling about the “patrimoniale del ‘92”, when Giuliano Amato, the recently appointed prime minister, did an overnight raid on Italian bank accounts, withdrawing 0.6% of the value to try and bolster the parlous state finances. Interestingly, Mario Draghi was Director General of the Italian Treasury at the time, apparently willing to do whatever it took even back then.

In considering the likelihood of new wealth taxes, it must be noted that Italian residents already suffer an annual 0.2% tax on the value of their financial holdings (either through stamp duties or the foreign assets wealth tax known as IVAFE). A one-off wealth tax of 0.6% would be preferable to 0.2% per annum in my opinion, but getting both would be a bit rough.

One must also consider the current political landscape compared with 1992. Back then, the system was beginning to crumble as the tangentopoli bribing scandal was getting started. This eventually led former prime minister Bettino Craxi to flee to Tunisia and brought about a supposed cleansing of the political classes dominant in the post-war period. The new system, known as the Second Republic, continues to this day and is currently dominated by Giorgia Meloni. Notwithstanding her somewhat inauspicious background and the fact she is surrounded by a cast of more or less unsavoury individuals, she has managed to convince the world that she is a force for good. My own view is that she is an able political operator and figured out fairly quickly that, if you play by the rules of modern conservatives, you get invited to far better parties – have a look at this video from the Atlantic Council who recently gave her the Global Citizen Award. From minute 1.30 you can hear what Elon Musk has to say about her.

Foreign assets may well be dragged into the tax net in other ways, of course, but at least you won’t wake up one morning suddenly poorer than when you went to bed. In extreme circumstances, which admittedly are almost unimaginable for the moment, capital controls and the like could severely reduce your financial flexibility in the event that all your assets were held in Italian financial institutions. This may seem like scare-mongering, but remember that the unthinkable has happened in the EU in recent memory, so it pays to be prepared. If the weather is uncertain (and when is it not?) then it’s always a good idea to have an umbrella with you. If you end up not needing it, all the better.

If you feel like discussing your own financial set-up to see if it can be improved, then do get in touch. I’m happy to provide a no-obligation consultation to discuss any concerns you might have and the options you have available.

A quick question for all Italian residents (whether you are DOC Italians or foreigners who have moved here):

Have you thought about your family situation and how Italian family law might apply to it?

The answer for many people appears to be “not really”, which may present something of a problem considering the legal consequences of various family scenarios. Italy used to be fairly simple in this regard, in that you were either married or you weren’t. If you were married, the situation was fairly clear, and if you weren’t, your “family” situation might have been somewhat tenuous.

I will explain better below, but first a brief disclaimer: this is a complicated field and each individual situation may lead to a different outcome. This article is intended to highlight some of the issues you may face but it cannot be relied upon as legal advice – I can help you to understand your own situation with the assistance of my network of legal and tax professionals. I am also not particularly concerned here with the dynamics of the legal relationship between parents and children – my focus here is on the status of the couple.

Italy has long had “forced heirship” rules which establish certain family ties that have the right to receive a given percentage of a deceased person’s estate. For simple family situations with uncomplicated assets, this may even mean that it is superfluous to make a will, because the intestacy laws already offer an adequate solution. However, “simple family situations” are now something of an exception to the rule. You might think, for example, that being in a de facto relationship qualifies as simple, given how the treatment of this type of relationship has evolved in many foreign jurisdictions to the point where there is little functional difference compared with marriage. Not so in Italy.

Italy is somewhat more traditionalist in its approach to family life and I don’t think it is an exaggeration to say that it has been dragged kicking and screaming into recognising modern family situations and, in particular, same-sex couples, who until relatively recently had no means of making their relationships official (de facto heterosexual couples did, of course, have the option of getting married – a right that same-sex couples continue to be denied).

Italy being Italy, the modern iteration of family law is complicated and requires action by a couple in order for there to be any kind of recognition of their status. Let’s take a closer look:

Marriage
For better or worse, marriage is still the gold standard of the family relationship in Italy. For reasons that will become clear below, there is no equivalent structure that confers the same level of family rights, some of which are as follows:
• automatic recognition of heirship for each spouse;
• right of the surviving spouse to continue living in the family home, even if that home was 100% owned by the deceased spouse;
• possibility to receive any Italian surviving spouse pension (pensione di reversibilità);
• possibility to enquire as to medical status of one’s spouse;
• reduced inheritance taxes for assets passing between spouses;
• possibility of child adoption.

Unione Civile
One tier below marriage is the Unione Civile, a possibility that has existed since 2016 and which allows two members of the same sex to declare themselves a couple in a similar fashion to a civil wedding ceremony. This confers most of the rights of married couples, but does not allow them to adopt children. Initially, it was intended for the Unione Civile to be available to all couples, but in the final instance it was reserved for same-sex couples. I’m not sure of the reason for this decision, but I imagine it has something to do with not wanting to undermine the concept of marriage, which remains an important topic for certain political factions.

Conviventi di fatto
Below the Unione Civile is the registered de facto couple (conviventi di fatto). This possibility is open to all couples but needs to be registered in your local comune – you will then have a residency certificate which attests to the status of your relationship. The benefits of registering as a de facto couple are essentially that the surviving partner has the right to inhabit the family home, but only for a maximum of 5 years. You certainly don’t automatically become your partner’s heir and there is no concept of family property (although you can stipulate in advance how to deal with your relationship property in the event of a separation). If you contrast this with the effects of marriage above, it becomes clear that this type of relationship isn’t equivalent to marriage in any legal sense.

Unregistered de facto relationships
The unregistered de facto couple, even if they have been together for decades, might as well not exist from a legal perspective, especially if the partners die intestate.

Forced heirship and foreigners
The issue of forced heirship needs a bit more explanation: it specifies certain individuals who cannot be excluded from your estate: spouses (even if legally separated), children and (in the absence of these first two categories) parents have a right to receive a given percentage of your estate. You will also always have a free portion of your estate that can be left to whomever you choose. The fact of forced heirship does not prohibit you from making a will leaving everything to the local dog shelter, but it does mean that these protected categories of people will be able to challenge your testamentary dispositions. For people without a spouse, children or parents, forced heirship is not a problem as the free portion of your estate is 100%, but you must of course make a will in order to guarantee that your desired heirs benefit under your estate.

If you are foreign, you may be able to insert a choice of law clause in order to allow your estate to be dealt with under the rules of your home country. However, the rules around this are somewhat complicated and you will need specialised legal advice to make sure you get it right.

If you would like to make clear your desired level of treatment in such a case, you can do so by using a living will (known in Italian as a DAT – Disposizione Anticipata di Trattamento). My wife and I tried to make living wills when we first married, but our notary refused to help us given the uncertain legal context at the time. The situation is now clearer, so we are in the process of sorting these out. If anyone is interested in how this ends up working in practice, send me an e-mail and I’ll be happy to help.

Where to from here?
If any of the above has struck a chord, then please do get in touch. Aside from helping to find a qualified professional to assist with your will, a general review of your assets and associated holding structures will ensure that you pay the least amount of tax possible during your life, whilst also directing your assets to the right people when you pass away. In particular, paying inheritance taxes in Italy is, for most people, a choice rather than an obligation, as they can legally be reduced to a bare minimum through intelligent estate planning.

Happy New Year to everyone! I hope that you have had an enjoyable festive season and are feeling ready for 2024.

In keeping with the long tradition of Italian governments fiddling with tax rules, 2024 brings with it a number of changes, so let’s dive in and have a look at what to expect.

IRPEF marginal tax rates

For 2024 we will have only 3 marginal tax rates:

This abolishes the previous band from €15 – 28,000 which was taxed at 25%, which will result in a net saving for someone with an income of €28,000 of €260 per annum. Don’t get too excited though, because if you have an income above €50,000, the reduction in IRPEF rates is offset by the withdrawal of certain tax breaks, which could lead to you paying the same amount as before.

Residency rules
2024 introduces a modified formulation of the definition of tax residency, in particular through Art. 2 of the TUIR (the Italian tax code). Without getting too deeply into the details, the emphasis seems to have moved from a strict presumption based on whether you have, in fact, declared residency in your local municipality to one based more generally on your physical presence and an evolved conception of domicile. Not much will change for you if you live year round in Italy and are already used to filing tax returns, but if, for example, you have made a determination that you aren’t tax resident in Italy in spite of the fact that you spend a large amount of time here, it would be a good idea to review your position to make sure that it is (relatively) clear under the modified formulation. The changes also need to be considered in the light of any double tax agreements and, from what I have been reading, even the experts are confused about what all this will mean in practice. None of the above is helped by the fact that the Agenzia will not give an advance ruling on whether a given individual is tax resident or not – they will tell you what they think if they ever subject you to an audit!

Careful planning and prudence remain key to protecting your position, so do get in touch if you would like to discuss further, as I can provide an introduction to an experienced tax adviser as part of an overall review of your financial situation.

Inbound Workers Incentive
Those who took up residency before the end of 2023 can continue to use the previous rules, which are far more generous than the updated version, in force from the beginning of 2024.

The incentive currently available is reduced from the previous 70 – 90% income tax reduction to a 50% reduction, capped at an annual gross income of €600,000. The requirement for the time spent as non-resident of Italy prior to making use of the incentive has been increased to 3 years, (or 6 – 7 years if there is continuity in the employment relationship). There is also an increased requirement to maintain Italian residency for 4 years (previously 2), and a requirement for a high level of specialisation in the qualifications necessary for the job in question.

Given the growing complexity of the requirements, it is worth spending some time assessing your personal situation if you are considering making use of these incentives. It is also worth noting that the incentives do not apply to pension contributions, which may reduce considerably the value of the tax break for anyone not planning on being resident in Italy for the long-term.

It is worth reminding anyone making use of these incentives that they apply only to work income; any investments or passive income generated must be declared and taxed according to the ordinary rules. There are plenty of tax planning opportunities available for people transferring residency to Italy, so please do get in touch to discuss your own particular situation – it is never too early to start this process, as a number of potential tax efficiencies are lost if they are not put in motion before becoming Italian tax resident.

Increased IVIE (wealth tax applied to foreign real estate)
As if life wasn’t already tough enough for those owning property outside of Italy (and particularly outside of the EU), the IVIE rate goes up in 2024 from 0.76% to 1.06%, calculated either on the equivalent of the valore catastale (if the property is within the EU), or on the lower of cost or market value if it is outside the EU.

For many people, owning foreign property is simply a sign of the connection they maintain with their country of origin. However, unless you really do need a property in another country, it may ultimately be more trouble (and cost) than it is worth once you take into consideration the difficulty of managing property from afar and its tax treatment. Consider that financial assets, which are vastly easier to manage and can provide a tax-efficient income if set up correctly, are subject to a wealth tax that is more than 80% lower than the tax applied to real estate and can qualify for a 100% inheritance tax exemption. I can provide an objective financial analysis for anyone considering alternatives to their foreign property investments.

CFCs and holding companies
Controlled Foreign Companies (CFCs) have long been a difficult area and tend to get mixed up in the general issue of residency, given that foreign corporate entities can be classified as Italian residents in a similar way to individuals who may consider themselves to be non-resident for tax purposes. The Italian tax treatment of CFCs has hitherto based itself on a threshold level of taxation for the CFC in question: if it is taxed at less than 50% of the equivalent Italian tax, this will attract negative consequences. This threshold level has since been simplified to 15%, with further consideration being given to holding companies that may enjoy a participation exemption. This is a very complicated area, but suffice to say that reviewing any holdings you might have in foreign corporate entities, especially if these are controlling interests, should be part of your Italian financial planning. I can provide appropriate introductions to experts in this field as part of an overall review of your situation.

The banking sector appears to be in the midst of a wobble at present, so it seems like a good idea to examine exactly how worried we all should be about our banking arrangements.

As no doubt everyone will have read, the current concerns have been triggered by Silicon Valley Bank, an institution the existence of which I was blissfully unaware until it suddenly collapsed. On examining what happened to SVB, the most startling thing to me was that it essentially suffered a good, old-fashioned bank run: depositors lost faith, ran for the exit and, well, you know the rest. The bank didn’t even have particularly exotic lending practices – most of its problems were caused by the fact that it had purchased government bonds with relatively long maturities, which had suffered temporary losses due to rising interest rates (the value of a bond will fall as interest rates rise, but this generally won’t result in a loss if you hold it until maturity).

If the crisis had been circumscribed to SVB and a couple of other similar banks in the US, we might all have gone on without further thought, but then all of a sudden we found out that Credit Suisse was in trouble. Was this the same sort of crisis, or something new? In reality, CS had, in the words of one analyst: “spent the last decade finding astonishing new ways to lose money and embarrass itself”. Some of the best examples of this were: allowing drug money to be laundered in Eastern Europe, getting caught up in a corruption scandal in Mozambique, channelling client funds to a fraudulent trade finance lender and a spying episode involving management and former employees. It is fair to say that CS had made its bed quite well and recent events finally forced it to lie down.

Once we had digested the idea of CS’s failure, then the market started to be concerned about Deutsche Bank – another institution which stands as an example of the colossal risks emanating from global banks with a wide variety of activities, from retail to investment banking and everything in between. For the moment, at least, it would appear that the markets have been soothed somewhat, but one could be forgiven for being concerned over the safety of one’s money in the current environment.

How safe are deposits with Italian banks?

Turning to the safety of Italian banks, we need to examine the provisions of Italian depositors’ insurance, which is available up to €100,000 per account holder (so if you have a joint account, for example, you get €100k for each person). Opening more than one account with the same bank doesn’t change anything, but opening an account with another bank would give you a further €100k for funds deposited with that bank.

As always, however, there are a number of devils in the detail, and the FITD (Fondo Interbancario di Tutela dei Depositi), the entity that provides the guarantees, has its fair share. First of all, it should be noted that all banks licensed in Italy must adhere to the FITD, which functions like a mutual guarantee system. What this means is that if a bank fails, the FITD basically has a whip-round amongst the other member banks in order to make good on the guarantee. This might be all well and good when the bank in trouble is some rustic banca popolare, but if it happened to be one of the big names, then this would almost instantly translate into a systemic crisis whereby trying to prop each other up would lead to them all falling over. The image that comes to mind is that of a group of drunks staggering down the street trying to keep each other upright. At that point the big question would be whether, and to what extent, the state would step in to provide a blanket guarantee. The current orthodoxy in such matters would seem to imply that some sort of guarantee would be forthcoming, although obviously much would depend on the state of the public finances at the time.

The mechanics of FITD guarantees

The FITD has been in existence since 1987, but only recently has its name (“Fondo” meaning “Fund”) actually corresponded to the reality of the situation. Up until 2015 the guarantee was totally unfunded, but a 2014 European directive obliged member states to institute depositors’ guarantees of €100,000, and for these to be pre-funded in the measure of 0.8% of the total guaranteed deposits by 2024. As of the end of 2022, the FITD had funds of €3.3 billion to cover €740 billion of guaranteed deposits (i.e. those under €100k), so roughly 0.44% of the total. The FITD forms part of EU and Italian banking regulation mechanisms and has been used primarily as part of various solutions contrived to avoid failure for struggling banks in the first place. In fact, since 1987 the fund has paid out about €3.3 billion, of which only €77 million was used to make depositors whole, with the rest being used to fund “solutions” to avoid collapse – the most recent example of this being Banca Carige which received €530 million as part of its sale to Banca BPER in 2022.

In the background, the EU is working towards EDIS – the European Deposit Insurance Scheme – which would institute a pan-EU fund as part of the banking union, but the machinations of this project have yet to be worked out satisfactorily, so for the time being we are stuck with national systems, albeit ones offering similar guarantees.

So what does this mean for me?

Notwithstanding the inherent weakness of a system based on mutual guarantees as described above, it would appear that the €100,000 minimum would be respected in any reasonable scenario. It also seems likely, based on past form, that the state would intervene to encourage a solution in any critical situations long before even a relatively unimportant bank actually failed. The fact that the depositors’ insurance is based on an EU directive also seems to imply that any need for state intervention to guarantee the basic level of depositors’ protection would be supported by the EU. So on the basis of all this, it seems reasonable to choose your local Italian bank by considering the services it is able to provide you as opposed to any perception of its security.

The proviso to the above is that you make sure to maintain only a modest amount of money in any bank and look at more secure solutions for the bulk of your financial assets. In this context, EU investment wrappers remain the gold standard for Italian residents, offering greater levels of protection as well as myriad other benefits – please take a look at this article – and get in touch if you’d like to explore how this might work for your own situation.

This may seem like something of a provocative title, but I am merely picking up on the common refrain that Italy’s current government is the most right-wing since the fascist era.

It would be no minor issue for the country if indeed we did find ourselves heading down a similar path, so rather than simply dismissing out of hand the possibility that Meloni could be a Mussolini for the new age, I thought I would look into it further. We are, after all, talking about someone who as a much younger woman expressed the view that Mussolini was “a good politician”, whatever exactly that is supposed to mean. I imagine we all expressed at least some views when younger that we might cringe to think about today, but certainly Meloni’s comment on Mussolini was something of a clanger considering the office she now occupies.

Before we talk about Meloni’s politics, let’s think about the difference between the Italy of 100 years ago and today. 100 years is a useful timeframe, because 1922 was the year of the March on Rome – the moment when the fascist movement kicked into a higher gear and, notwithstanding the fact that it was poorly resourced and even more poorly organised, managed to bring Mussolini to power. The fascist movement had begun a few years earlier, populated initially by disaffected soldiers returning home to anything but a victor’s welcome following the First World War. Subsequently, the fascists managed to find their raison d’être and much broader support in the fight against socialism/communism, yet the entire movement might easily have fizzled out had it encountered even a modicum of resistance from the monarchy and the political establishment or if one of the many assassination attempts on Mussolini had succeeded in the early years of the regime* .

As fascist power grew, the desire to return Italy to its rightful place in the world, as heirs of the Roman Empire, took hold of Mussolini’s imagination, leading to the conquest of such places as Libya, Ethiopia and Albania. At home, the country was dragged into the modern age through the execution of public works programmes as well as monumental changes to cities such as Rome. The next time you wander down the via dei Fori Imperiali, consider that you are in an area profoundly changed by Mussolini, who demolished an entire area of Rome to make way for what was initially called via dell’Impero – put in place so that he could see the Colosseum from his office in Palazzo Venezia at the far end of the road. It is fair to say that from an economic and social perspective, the Italy of 1922 is almost unrecognisable compared with the country we live in today.

Now let’s consider the Italy of 2022 that swept Giorgia Meloni to power. Notwithstanding its difficulties, Italy is undoubtedly among the wealthiest countries in the world. I know there can be large regional differences and often the systems are confusing, but generally speaking Italian healthcare, education, infrastructure and other public services range from adequate to excellent. Italy is the home to world-leading industries and is certainly a place where one can rise through the social hierarchy regardless of one’s origins. If you need proof of this, consider that Leonardo Del Vecchio, the founder of Luxottica who died last year as one of Italy’s richest men, was born in 1935 to a solo mother and grew up in an orphanage.

Italy has many of the hallmarks of modern, well-heeled democracies, including an ageing population and a prevalence of small families (when people decide to have children at all). It is incredible to think, but over the course of my lifetime (I’m not quite 50 years old), the number of babies born in Italy each year has halved from about 800,000 to about 400,000 currently. The odd incentive for young families isn’t going to change that trend in any substantial way.

Imagine, now, if you will, that Meloni decided to pick up the fascist cudgel and start to take a more aggressive geopolitical stance. The current army of one-child families is probably the greatest guarantee against this because how many of these parents will permit their children to march off to war? Occasionally one does see fascist meetings – for example I recall seeing one reported in Cremona to commemorate the death of Roberto Farinacci, a particularly hardcore exponent of the black shirt, but to be honest the sight of fat old men singing “Giovinezza” (the fascist anthem, dedicated to youthful courage), was as comical as it was pathetic. It is also amusing to note that one of the main scandals so far in the Meloni era has been her decision to use the masculine article “Il Presidente” as opposed to “La Presidentessa” or something similar. This seems to me to be the kind of problem you discuss when you really don’t have any serious problems (or, perhaps more accurately, you don’t wish to discuss the various intractable problems that do exist). I also don’t think we should be particularly concerned over the apparent revival of Berlusconi’s connections to Putin: he simply can’t accept that he’s become a marginal figure, almost a caricature of himself, so he’s returned to his advertising roots and is willing to do anything to get attention.

What I do see is a general trend towards nationalism, which can, I suppose, be seen as a very watered-down version of fascism. There is at least the possibility of some expansion of state participation in business, although one can but hope that no one is considering a return to the days of IRI (L’Istituto per la Ricostruzione Industriale) – the behemoth state holding company founded during the fascist era that for decades controlled huge swathes of the Italian economy. In this context, it is disturbing to hear discussion of the potential nationalisation of Telecom Italia (TIM), although this might be best seen as an (expensive) opportunity to correct a poor privatisation that left the company imprisoned by its debt burden. It is more likely to see the state getting involved at a smaller scale, with the recent trend in the use of the state-controlled CDP (Cassa Depositi e Prestiti) for financing and even venture capital activities an indication of things to come. It is also more than likely that the state guaranteed loans issued as part of Covid support measures will eventually result in the need to absorb zombie businesses in politically sensitive sectors.

All in all, it seems to me that Meloni fortunately has neither the innate tendency towards fascism, nor a populace willing to be led in that direction. We would probably do better to think about whether the current global trend of rearmament will lead to problems in 10 – 20 years time when all the shiny new weapons are ready for use. I worry that if you build enough of them then sooner or later an excuse will be found to use them – violence is violence, regardless of political ideology.

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¹Using US market data – S&P500 for equities and 7 – 10 year Treasuries for bonds

The good news is that after the difficulties of 2022, many assets now offer better value than they did 12 months ago, but whether or not 2023 will offer great returns or is destined to test our nerves again is a matter of great debate.

It would be tempting at this point to start looking at economic forecasts for 2023 to get an idea of what to expect. The issue here is that which I examined in my article on inflation – we can’t actually know what the future holds, so let’s concentrate on putting together a portfolio that is likely to serve us well as we attempt to generate a reasonable return for the medium-long term.
Far more important than economic prognostication when constructing a portfolio is understanding your own risk profile, because this allows you to give appropriate consideration to matters that you can ascertain and that will certainly affect your investment returns. In no particular order, you need to be thinking about:

• Where are you in the life-cycle of contributing to or drawing down from savings?
• What are your overall financial resources and how adequate are these compared with your needs?
• What are your aspirations?
• What is your ability to withstand market volatility?
• How much do you worry about your money?

Once you have answered all of these questions, you can come up with an appropriate posture to risk. Whether or not you should vary this posture depending on the current market circumstances is a question that you must try to answer at the outset. If you are going to change your posture on the basis of current circumstances, then you must believe that somehow you are able to understand the current situation better than the market consensus, and also understand the affect your view might have on the markets if it happens to be correct. Your assessments might be correct occasionally, but are also likely to be wrong quite often (rather like those of professional forecasters). This leads to the maxim that for nearly all people, nearly all of the time, the appropriate posture is their neutral one based on their risk profile.

There is one other extremely good reason why you would always be well-advised to maintain this neutral posture: it will help you to avoid the cardinal sin of investing – selling low. As I explained in the article linked above, long-term investment offers magnificently favourable odds of good returns, but if you are prone to selling at the bottom, as you may well be if you decide to oscillate between “risk-on” and “risk-off” postures, those odds are turned upside down and will likely cause serious damage to your wealth. Of course, you might also end up buying high occasionally, which may lead to a period of regret, but if you have invested wisely, then time will iron out these wrinkles. It is undoubtedly better to concentrate your attention on what you can know and influence, rather than wringing your hands over economic forecasts.

These are complicated issues that all investors have to face. My advice aims to keep you focused on the important issues rather than leaving you to try and puzzle through the ever-present “noise” in the investment markets. Over the long-term, you will almost certainly find that ignoring the distractions provided by the market action in years like 2022 will contribute to, rather than detract from, your investment success. If you would like to know more, or to conduct a review your current portfolio, then feel free to get in touch for a no-obligation consultation.

Subscribe to my podcast
IFA (Italian Financial Adviser) on:
Apple Podcasts, Spotify, Google Podcasts or Stitcher