If you think Britain’s banks are in bad shape, spare a thought for the Italians, where the country’s battered lenders are rapidly crumbling under an astonishing €360bn (£300bn) of bad loans.  per Daily Telegraph

While most people fret about the fallout from Brexit, some experts believe Italy’s banking crisis represents a far greater threat to the eurozone.

The problem is that Italy’s financial system needs a substantial bailout, but EU “bail-in” laws prevent prime minister Matteo Renzi from undertaking one without first wiping out the banks’ shareholders and bondholders.

Renzi, however, is desperate to avoid this because it could cost him his political career. In Italy, tens of thousands of households and individuals have bought such bonds, and forcing the problems of the banks on the man on the street would make it impossible for Renzi to be re-elected.

He argues that the rules, introduced after the financial crisis, should be waived because the market turmoil unleashed by Brexit has threatened Italy’s financial stability.

However, Brussels is refusing to budge, and senior banking sources believe Renzi could press ahead with a €40bn bailout.

Such a move would be the equivalent of throwing a hand grenade at the entire EU project. By flouting  state aid rules, it throws into question the future of the banking union, a central pillar of the eurozone.

Also, by setting a precedent for bank bailouts, it paves the way for countries such as Portugal, where the financial system is also under strain, to suddenly do the same, therefore undermining the EU’s entire credibility. Forget the Greek crisis – this is Europe’s biggest test yet.