Jim Armitage: Italy shows that a little fudge is the easiest thing to digest

After 40 years, we Brits never got our heads around Europe. We could never understand that, in EU diplomacy, compromise is the watchword. Laws are there to be used as a guide, not rigidly imposed and copper-bottomed as we have here in Britain.

So you get a situation where, in spite of tough new European rules banning state bailouts of banks, Italy is pushing through a deal for taxpayers to pump €17 billion (£15 billion) into two collapsed lenders in the industrial north.

The funding package for Banca Popolare di Vicenza and Veneto Banca breaches the letter of the EU rules, but makes sense in terms of their spirit.

Taxpayer bailouts were banned to prevent the public ever again having to fund the big, rich bondholders and depositors investing in our banks. But in Italy, unusually, most of the bonds are held by households. To have let these banks collapse would have meant hurting families in the region and destabilised the local economy. Not clever with elections around the corner.

As for depositors, they had to be protected to save Italy’s still-fragile banks from future bank runs.

Hawks in Germany were today complaining that Italy had breached the new bail-in laws. The same hawks whose demands on Greece nearly killed it.

Italy should have bailed out its banks with taxpayer money as Ireland and Spain did before the new rules came in. But it didn’t.

Now Rome, and the European Central Bank, have come up with a pragmatic, European fudge. Good.