DIRE SITUATION IN ITALY’S BANKS

Even if Italy is not hit by a banking crisis imminently, the dire situation in Italy’s banks and its whole economy could still cause a financial disaster in Europe that would reverberate around the world.

Italy is the eurozone’s third-largest economy, and the eighth largest in the world. An economic collapse in Italy would put Europe in a crisis far, far worse than the ongoing Greece crisis.

Around 20 percent of loans are not being paid back. These non-performing loans are worth over €200 billion. At 18%, Italy’s ratio of nonperforming loans is more than four times the European average . It’s the equivalent of 21% of GDP in a country that boasts Europe’s second highest public debt-to-GDP ratio (132%), just behind Greece, and where the banks hold over 70% of the country’s debt. The Italian budget passed last December is around € 32 billion and is projected to run a deficit of 2.4%of GDP.

Italy's debt relative to the size of its economy is second only to Greece and it is still borrowing money every year. Meanwhile its economy has been shrinking over the last few years. It cannot afford to bail out its banks. Its deposits-guarantee fund which exists to ensure that those with under €100,000 don’t lose anything in a bankruptcy is almost certainly inadequate.

An Italian banking crisis could easily push the whole country into very serious trouble. A truly massive European bailout would be required to fix it.

Even if the crisis calms down again, the non-performing loans remain a major problem. A financial crisis triggered elsewhere could easily push Italy over the edge.

Italy’s banking problem threatens to dramatically worsen the euro crisis at the same time as Europe struggles to deal with the migrant crisis.