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EU approves bailout of BMPS, the world’s oldest bank

The EU competition commission has approved a 5.4 billion euro bailout of Italy's troubled Monte dei Paschi di Siena (BMPS), the world's oldest bank, as part of a major overhaul.

Published: 4 July 2017 17:25 CEST

EU approves bailout of BMPS, the world's oldest bank

The logo of the bank pictured in Milan. Photo: Giuseppe Cacace/AFP

The decision, announced in a statement on Tuesday, comes days after Brussels accepted that Italy could inject up to 17 billion euros ($19 billion) to break up two insolvent Venetian banks.

Public bailouts were supposed to be a thing of the past after the eurozone created a banking union with specifically designed rules to keep taxpayers from having to bail the banks out.

Founded in Siena in 1472, BMPS has been in deep trouble since the eurozone debt crisis and will now be owned by the Italian state, which has ended up with a 70 percent stake.

EU Competition Commissioner Margrethe Vestager said the capital injection had been approved, noting it would “help BMPS meet capital needs” if economic conditions worsen unexpectedly.

READ ALSO: Here's what you need to know about the BMPS crisis

The bailout is part of a rescue that the EU approved last month after BMPS failed to raise capital on the markets last year.

In exchange for the lifeline, Italy must accept a drastic EU-approved restructuring plan for BMPS that reports say involves up to 6,000 job cuts out of a total of 25,000.

The Commission said on Tuesday the plan would involve salary caps for senior managers and a demand that the bank reconfigure its business model toward a smaller retail clientele.

The plan will also see 26.1 billion euros in troubled assets set aside in a so-called “bad bank”.

Weakened by the disastrous purchase in 2007 of the Antonveneta bank, BMPS quickly drifted into scandal when its management team was accused of fraud and misuse of funds.

In addition to the bailout, authorities have also forced the bank's private lenders to become shareholders.

READ ALSO: How Italy's banking crisis has affected life in Siena

Card over cash? Why Germany is seeing a new payment preference

Germany has long been a very cash-based country, occasionally to the dismay of frustrated tourists at the Döner shop.

A few German phrases express the people’s love of physical money. There’s ‘only cash is true’ – Nur Bares ist Wahres. Or Bargeld lacht, literally meaning cash laughs, but used to imply that cash is what’s wanted, similar to ‘cash is king’ in English.

But the classic German preference for cash appears to be evolving, as the use of girocards is growing, even for small transactions.

How are girocards being used?

Girocard, an ATM and debit card service offered by German Banks, was designed to allow customers to use virtually all German ATMs and, increasingly, to make purchases at businesses.

READ ALSO: Ask an expert – Why is cash still so popular in Germany, and is it changing?

Last year, consumers in Germany used their Girocard more often than ever before for cashless payments. A total of €7.48 billion payment transactions with the plastic card were counted – 11.5 percent more than in the previous record year 2022, according to figures published by the Frankfurt-based institution Euro Card Systems.

Whether at the bakery, petrol station or supermarket, customers are increasingly pulling out their cards at the checkout, even for smaller amounts. As a result, the average amount paid with the Girocard fell from €42.34 to €40.69 within a year.

The rise of card payments in Germany

Contactless payment, which is possible with girocards and credit cards that have an NFC chip, got a boost during the Covid pandemic, as retailers promoted it for hygiene reasons.

But the use of card payments has continued to grow in Germany since then, boosted partly by the increasing use of girocards.

Promoting the use of girocards, some German banks have expanded their cards’ functions: Sparkassen, Volksbanken, or Raiffeisenbanken offer girocards for the digital wallet, for example.

Banks want to continue upgrading the payment card with further applications. For example, a project is being tested which would add an age verification function to girocards that would be useful when a customer is buying cigarettes.

On the retail side, it’s clear why the Girocard is preferred to other debit options.

“We see that debit cards from international providers cost up to four times more,” Ulrich Binnebößel, Head of the Payment Systems & Logistics Department at the German Retail Association (HDE) told DPA.

What’s the difference between the Girocard and other debit?

The Girocard is a strictly German phenomenon. It can be seen as the latest iteration of the EC card, which was created to consolidate payment systems following the unification of former East and West Germany.

In 1991 different debit card systems, including Eurocheque guarantee cards from former West Germany and Geldkarte ATMs from former East Germany, were unified into Eurocheque cards.

Then in 2001, the Eurocheque system was disbanded, but German banks continued to use the EC logo for “electronic cash’” cards, or EC cards. In 2007, the German Banking Industry Committee introduced Girocard as a common name for electronic cash and the German ATM network.

Girocards are only issued and accepted in Germany, so if you want to get one of your own, you’ll have to join a German bank, and shell out those notorious German banking fees.

READ ALSO: Why it’s almost impossible to find a free bank account in Germany

Alternatively, you can get by with internationally accepted debit cards provided by a bank in your home country, or otherwise by joining an app-based European banking service like N26.

But be warned, without the Girocard in hand, at some smaller retailers you may be told, “Leider nur Bargeld oder EC-Karte.”

With reporting by DPA

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