Will Monte Paschi banking scandal throw open Italy's election race?

Monte dei Paschi di Siena is the world's oldest bank founded in 1472 and is Italy's third-largest lender.

Story highlights

  • The scandal centers on losses of 730 million euros ($975 million) from financial products
  • McDonnell said local party officials were "all up to their necks in Monte dei Paschi"
  • Mussari was chairman of Monte dei Paschi from 2006 before stepping down last year

Italians don't tend to pay much attention to billion-dollar banking scandals when it comes to casting their votes for the country's next leader.

The country is "saturated" with them, according to Italian politics expert Duncan McDonnell of the European University Institute in Florence. The people say "So what?" he adds.

That indifference is reflected in January's opinion polls pointing to this month's election. But a financial scandal at the world's oldest bank, Monti dei Paschi di Siena, could upset the apathy.

The scandal centers on losses of 730 million euros ($975 million) from financial products, details of which were allegedly hidden from regulators. The transactions, which took place between 2007 and 2009, have now triggered a probe into the bank's former management.

The affair is exposing just how close Italy's politicians and banks are intertwined, casting a shadow over the general election on February 24 and 25.

It threatens to taint the reputations of Italy's top political figures, with even European Central Bank (ECB) President Mario Draghi finding himself under media scrutiny. The scandal could also resurrect the campaign fortunes of controversial former Prime Minister and AC Milan owner Silvio Berlusconi.

Italy's small retailers face grim times
Italy's small retailers face grim times


    Italy's small retailers face grim times


Italy's small retailers face grim times 03:00
Crisis at state-backed Italian bank
Crisis at state-backed Italian bank


    Crisis at state-backed Italian bank


Crisis at state-backed Italian bank 02:08
Berlusconi neither down nor out
Berlusconi neither down nor out


    Berlusconi neither down nor out


Berlusconi neither down nor out 02:24

Watch more: Berlusconi wants old job back in Italy

According to McDonnell, of the three candidates running for prime minister, Pier Luigi Bersani, leader of the center-left Democratic Party and likely next prime minister, and incumbent technocratic Prime Minister Mario Monti have the most to lose.

None of the candidates have been accused of any wrong-doing but McDonnell said local party officials were "all up to their necks in Monte dei Paschi... This ought to reflect really badly on the center-left and the Democratic Party."

A city in Tuscany

Siena -- the small Tuscan city where the banking giant is headquartered -- is a stronghold for Bersani.

McDonnell pointed to the Democratic Party's role in placing the chairman, Giuseppi Mussari, through the bank's largest shareholder, Fondazione Monte dei Paschi di Siena. The foundation did not immediately respond to requests for comment.

Watch more: Italy faces large mountain of debt

Mussari was chairman of Monte dei Paschi from 2006 before stepping down last year after the bank's problems mounted. He is currently under investigation by prosecutors in Siena. Mussari's lawyer did not respond to requests for a comment.

Last year the bank appointed Alessandro Profumo -- former CEO of Italy's biggest bank UniCredit -- as chairman and Fabrizio Viola as chief executive.

Giovanni Sanfelice di Monteforte, a spokesman for Monte dei Paschi, told CNN: "It is essential to distinguish between the past and the new management." He added: "Today the bank is completely independent from politics."

Bruno Tabacci is the leader of Centro Democratico, a party that together with the Democractic Party forms the center-left coalition. Speaking on behalf of both parties, Tabacci told CNN the scandal at Monte dei Paschi is due to the exclusive relationshp between the city of Siena and the bank creating "over time clearly evident situations of conflict of interests."

He says that Monte dei Paschi is the only institution among the big Italian banks where a foundation has majority control.

But Tabbaci told CNN the affair would not be decisive in the elections. He said: "It is necessary for the interest of the account holders, consumers, family and industries that banking be clearly separated from politics. I know for a fact that Bersani agrees with me on this point."

Gianfranco Pasquino, former Italian senator of the independent left and John Hopkins Professor of Italian politics, told CNN the scandal was a bad combination of politics and banking. He said: "The bank was controlling everything from the mayoral elections to the local basketball team."

Could scandal destabilize Italy?

The Monte Paschi affair throws into question whether Italy's politicians and central bank are truly in control of the country's financial system, according to McDonnell.

And it even stretches beyond Italy and to the doors of the ECB. Draghi was head of the central bank of Italy at the time of the suspect trades.

Speaking at his monthly ECB press conference Thursday, Draghi said: "You should certainly discount much of what you hear and read... as part of the regular noise that elections produce."

The revelations are unfolding even as Italy, under the helm of Monti, has entered a period of relative calm after being in the spotlight of the eurozone crisis.

But Federigo Argentieri, professor of political science at the John Cabot University, says banking scandals such as Monte Paschi could pose a threat to the country's austerity drive and raise concerns over the integrity of Italy's financial system.

The revelation of Monte Paschi's alleged misdemeanours forced Monti's finance minister Vittorio Grilli to answer questions in parliament last month. He told lawmakers that Italy's banks are solid and supervision by Italy's central bank was attentive.

Argentieri said Grilli's remarks were an "empty defense" and he echoed the sentiments of Berlusconi's party secretary Angelino Alfano and Giulio Tremonti, telling CNN: "In the first place, don't tell us that the [Democratic Party] is not involved... number two; don't tell us the Bank of Italy is completely not responsible for it."

A spokesman for Grilli declined to comment when contacted by CNN.

Meanwhile, the mere suggestion the scandal could revive Berlusconi's political career is causing concern for some.

Pasquino said a return to government for media tycoon Berlusconi would be a "disaster" for the Italian economy.

      Europe's financial crisis

    • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

      Schaeuble: 'Don't see' bailouts

      German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
    • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

      Spain keeps partying

      Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
    • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

      OECD: Slow recovery for Europe

      The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
    • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

      Europe's new threat: Slow decay

      The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
    • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

      Spain aims for big tourist summer

      Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
    • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

      May Day protesters flood Europe

      As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
    • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

      Croatia PM: We need Italy to recover

      As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
    • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

      Spain's unemployment hits record

      Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
    • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

      Welcome to Madrid: City of protests

      Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.