E.U. Will 'Muddle' Through Italian Crisis, Frmr. U.S. Treasury Official Millstein Says
NEW YORK (TheStreet) -- The European Union is looking to avoid another conflict with a member state as it continues to work through the Italian banking crisis.
Jim Millstein, former Chief Restructuring Officer at the U.S. Department of the Treasury, believes the way forward for the E.U. is one of slow, directionless bureaucracy.
"They're going to muddle their way through this conflict between state aid and forcing losses on bond holders," Millstein said on Bloomberg TV's "Bloomberg Go."
Since 2010 the E.U. has sought a solution to the "huge problem sitting on [Italian] bank balance sheets" and the current E.U. leadership faces the possibility of its first bail-in, Millstein says. He believes that E.U. could fashion "what we would call open bank assistance, which is in effect what we did with TARP" in 2009.
While the E.U. has "extended extraordinary credit" to Italy, "they never got around to confronting the need for serious injections of capital," Millstein noted.
"The capital standards have been enforced but not as strongly and as rapidly as in the U.S. There is a real need for bank recapitalization," Millstein added.
The effects of the slow response are being felt both around the world and in the U.S., where an the current "era of central bank led negative interest rates is destroying bank earnings," Millstein said.