As Martin Wolf of the FT pointed out this morning on Today, this German fear of becoming banker to the entire eurozone even infects the capacity of the European Central Bank to buy the debt of Italy and Spain in sufficient quantity to prevent their sovereign borrowing costs from ballooning to potentially lethal levels.
That merger is subject to approval by the Bank of Italy, meaning that the central bank has to try to ensure that its interest as an investor does not conflict with its regulatory responsibility.
Ten years ago branch networks were decided by the Bank of Italy, the central bank, lending was tightly regulated and two-thirds of the banking system was in the hands of central or local government.
There is clearly a problem, but neither the Bank of Italy, the country's central bank, nor the Italian banking association can put figures on it.
The first was the government's handling of the bizarre affair of Italy's central-bank governor, Antonio Fazio, who is accused of favouring a takeover bid by Banca Popolare Italiana (BPI) for Antonveneta, a larger Italian bank, over a rival bid from a Dutch bank, ABN Amro.
Under this system, called Target2, one consequence of businesses and households taking their money out of the bank accounts of the deficit countries, such as Greece, Italy and Spain, is that the German central bank ends up lending vast sums to the central banks of those deficit countries.
So the expectation is that the central bank will buy government bonds of Spain and Italy.
Antonio Fazio, the governor of Italy's central bank, has been banging the pensions-reform drum for several years.
In the meantime, traders have looked to the central bank to ensure the cost of borrowing to Italy and Spain does not rise too high.
BNL. Until recently the Bank of Italy, the central bank, seemed to be suggesting that a 15% share for a foreign owner was as much as it would tolerate.
An economist by training, Mr Padoa-Schioppa has climbed almost to the top of Italy's central bank, managed the European Commission's economics and financial affairs division and chaired a prestigious international committee of bank regulators.
Federal Reserve Bank of Philadelphia president Charles Plosser said in Italy Thursday that the central banks of the world cannot create wealth and said central banks do not have the tools to fix the present economic and financial problems in the major industrialized countries.
The surest way is for the European Central Bank to buy the debt of wobbly countries like Italy, a notion that terrifies Germans, still seared by their grandparents' memories of hyperinflation.
Yet, faced with apparently fudged criteria and the inclusion of Italy, the European Central Bank might then choose to follow a tighter monetary policy, making the new currency harder, not softer.
According to the Bank of Italy document, the central bank began to question MPS's capital solidity when it first had to evaluate whether to give its green light to the Antonveneta acquisition in 2008.
It is that trend that has led the European Central Bank to expand its bond purchasing to the debt of Italy and Spain in recent months.
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The market regulator's powers do not extend to the central bank, but Consob officials recognise that the Bank of Italy's presence as a shareholder in quoted companies is a serious problem.
It is said that two European central banks were worried enough to have requested information from the Bank of Italy.
Urge the European Central Bank (ECB) to be lender of last resort to vulnerable sovereigns like Italy?
It traded as high as 39.25 on Friday before settling lower after the European Central Bank said it was standing by ready to help Italy in the event of a bond default.
Fortunately for Italy, the bond-buying programme of the European Central Bank (ECB) is providing a powerful counterweight to concerns about Italian politics.
Having an Italian at the head of the ECB is awkward enough given the support the central bank is providing Italy by buying its government bonds in the markets.
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Investors also expressed concern over rising borrowing costs for Spain and Italy, just as signs are mounting that the effects of the European Central Bank's low-cost loans to banks are wearing off.
That comes as bad news for those who had hoped Italy was starting to embrace integration, especially after the sacking as central-bank governor of Antonio Fazio, who for many years had blocked foreign takeovers of Italian banks.
Europe is still on the brink, despite efforts by ECB president Mario Draghi, which has fueled rumor of a targeted bond buying program by the European Central Bank to lower rates in troubled sovereigns like Spain and Italy.
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The likes of Greece and Italy might be desperately trying to win the confidence of international investors, but today the Swiss central bank promised to spend an unlimited amount of money turning investors off.
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