Who’s to blame for Monte dei Paschi?

The new Italian Prime Minister Paolo Gentiloni is famous for never losing his temper. But he should consider making an exception for Monte dei Paschi di Siena.

If the Italian bank’s latest desperate attempt to raise €5 billion fails on Thursday, as it seems likely, the biggest losers will be domestic taxpayers, mom-and-pop investors, and the country’s already battered international image.

That seems worthy of causing even a preternaturally calm man to lose his patience. I, for one, have lost count of the bankers, diplomats, and eurocrats who roll their eyes and sigh when the subject of MPS comes up.

Their unspoken reproach is clear: “You guys, once again?”; “Is Italy on the verge of a new financial crisis?”; “When will you learn?”

Those people shouldn’t be casting stones. They share some of the sins that led to this mess. But first, let’s have a look at how we got here. And, while we’re at it, let’s name some names — because in Italy, amnesia far too often leads to amnesty.

The bank’s former management has to top the list. I’m referring to the former top duo, Giuseppe Mussari and Antonio Vigni. Together with MPS’s board, they are responsible for the disastrous acquisition of Banca Antonveneta in November 2007.

Take another look at that date: November 2007 — just a few months before the explosion of the most devastating financial crisis since World War II.

Italian Prime Minister Paolo Gentiloni speaking with his predecessor, Matteo Renzi, in 2015 in the Senate | Alberto Pizzoli/AFP via Getty Images

And take another look at the price MPS paid: €9 billion went from MPS to Santander. MPS paid so much that the late Emilio Botin, a hardened banking veteran and Santander’s founding father, was almost ashamed of the deal.

On the day it was signed, a sheepish Botin told his investors that Santander’s internal estimates valued Antonveneta at around €6.5 billion. What was he supposed to do when the guys from Siena came bearing €9 billion?

The question nobody has really answered is: Why did MPS pay so much? It’s a question I would like to put to the two banks that helped MPS in the deal: Merrill Lynch, then led by Andrea Orcel (now a prominent figure at UBS), and Mediobanca, Italy’s premier investment bank.

To be fair, Merrill never gave MPS a “fairness opinion,” the usual green light that advisers provide to eager buyers of assets. But the question stands.

Neither the European Commission, nor the European Central Bank, and least of all the German government lifted a finger to help Italy.

Worst of all, MPS sold bonds to retail savers to help finance the deal, laying the seed of today’s toxic political dilemma on whether to allow them to take a hit as EU rules require in a government rescue.

Italy’s political class is by no means clear of blame. Others will have to dissect the tight and complex relationship between MPS and local Tuscan politicians. What I want to do is analyze the flawed strategy employed by former Prime Minister Matteo Renzi’s government “in defense” of MPS on the international stage.

It was widely known for some time that MPS was in bad shape and in need of fresh capital. But instead of weaving a subtle web of diplomatic contacts in Brussels, Frankfurt, Berlin, and Paris to prepare the ground for a rescue, Renzi and his crew employed a scorched-earth policy.

The Terminator, as Renzi likes to call himself, kept repeating that Italy’s banking sector didn’t have a problem, despite being saddled with more than €360 billion in bad loans. In fact, when reporters asked about Italian banks, Renzi went on the offensive, not-so-politely reminding Germany that it should be worrying about Deutsche Bank rather than giving unwanted lessons to proud Italians.

It could have been a refreshing tactic — if it been accompanied by a winning strategy, namely building a consensus on how to rescue MPS and other ailing Italian banks. Instead, Renzi ended up on the losing side. Big time.

Neither the European Commission, nor the European Central Bank, and least of all the German government lifted a finger to help Italy.

To add insult to injury, Orcel (yes, him again) and UBS proposed a possible private sector solution in June, with a €3-billion capital raise fully guaranteed by the Swiss bank, plus a €2 billion bridge loan. According to them, the whole saga could have been ended in October.

Italy had flexed its muscles, only for the Germans (and ECB Chief Mario Draghi) to slap it down and send it home with its tails between its legs.

But Renzi and MPS declined their offer, preferring instead to wait until after Italy’s December 4 constitutional referendum (which Renzi lost, prompting his resignation). They asked JPMorgan and Mediobanca to help, but did not offer any guarantee that the money would actually be found.

The ECB’s decision earlier this month — to refuse Italy more time to recapitalize MPS — was the cherry on the cake. Italy had flexed its muscles, only for the Germans (and ECB Chief Mario Draghi) to slap it down and send it home with its tails between its legs.

That said, the ECB, the Commission, and Berlin have not come out smelling of roses. After spending years doling out billions of euros to banks around Europe, they improbably metamorphosized into strict taskmasters.

Yes, it’s true that new Brussels rules on public rescues of banks came into force in January. But this still doesn’t explain why European regulators performed such an abrupt U-turn after approving so many state bailouts similar to the one proposed for MPS.

I realize that this may not be a very Christmas-y thought. But there aren’t many heroes in the MPS ordeal. The only silver lining is that the final word in this story is yet to be written.

Who knows. Perhaps Gentiloni or somebody else will find a way to hold those responsible accountable. It would be a real shame if the only people who end up paying were Italian taxpayers and the poor suckers who bought bonds in Europe’s oldest and least reliable bank.

Francesco Guerrera is associate editor and chief financial correspondent for POLITICO. He writes a monthly column for the Italian newspaper La Stampa, where a version of this article appeared.