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Politics overshadow Monte Paschi bank probe

Politics overshadow Monte Paschi bank probe
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It is a crucial week for Italy’s Monte Paschi bank.

As part of investigations into possible fraud magistrates are questioning key witnesses, including the former president and former director general of the world’s oldest bank.

The probe is focused on complicated derivatives and other contracts that have left it facing losses of at least 720 million euros and needing a state bailout.

It is also looking into whether bribes were paid when Monte Paschi bought another bank – Antonveneta – in 2007.

The scandal has touched off a political fire storm just three weeks before elections in Italy because of the bank’s links to the centre left Democratic Party.

Centre-right former Prime Minister Silvio Berlusconi is using the investigation into the 450-year-old bank to attack both centre-left rivals and outgoing prime minister Mario Monti, whose Treasury approved a bailout for Monte Paschi last month.

Tuscany, where Monte Paschi is based, is a traditionally leftist area. Monte Paschi has for decades had close ties to the Democratic Party (PD), the largest in the centre-left opposition coalition, through local government and dominance of a charitable foundation which is the bank’s largest shareholder.

“We are risking a banking crisis of confidence over Monte Paschi,” Roberto Maroni, head of the Northern League, a key Berlusconi ally, said on Sky Italia on Sunday.

“The bank is controlled by the foundation, which is controlled by the PD. It would be in the PD’s interest to clarify everything,” Maroni said.

The scandal has spread from Tuscany to the European Central Bank in Frankfurt.

ECB head Mario Draghi, who was governor of the Bank of Italy at the time of Monte Paschi’s risky deals, has been accused of lax oversight.

Despite having doubts about Monte Paschi’s operations and accounts as long ago as 2009, the Bank of Italy said it did not summon the bank’s management until late 2011 and applied no sanctions until after top executives stepped down last year.