This is the first paper in the series called ‘The Brexit Papers’ for Global Britain: it discusses the plight of Deutsche Bank, how that is symptomatic of the EU economy as a whole, and the dangers for the UK if Deutsche Bank were to fold – since it is an important bank for the UK’s debt and currency markets.
Deutsche Bank has been the High Priest of the EU’s policy of creating a single financial market and a single payments area: the bank has invested heavily and then seen the EU legislate to knock away any revenue potential from these banking businesses brick-by-brick.
Banking is now a zombie business in the EU, with obligatory investments but no sources of returns, and also the inevitability of generating a book of bad loans, especially if the bank operates in the Eurozone periphery countries, as Deutsche does.
The plight of Italy is very dangerous to the bank, and the plight of the bank is very dangerous for the EU financial mechanisms that have large exposures to Deutsche: the European Central Bank and the European Investment Bank.
Those exposures could result in calls for extra cash from the UK, and Deutsche in the UK is a gilts market-maker and important payments and lending bank.