Italy’s woes expose euro-area governance failures

Significance

The political uncertainty in Rome is hampering efforts to restore confidence in MPS and poses a challenge to the implementation of the EU’s controversial ‘bail-in’ rules.

Impacts

• Euro-area core inflation is just 0.8%, less than half the ECB’s 2.0% target despite a gradual pick-up in growth.
• Despite surging nearly 50% from a July record low, the Stoxx 600, the euro-area’s banking sector index, is still 5% down year-to-date.
• From 2017 to 2019, 550 billion euros of EU banks' senior debt will mature -- a lifeline, if the most vulnerable can survive until then.
• Further euro-area capital requirements will come in in 2017, but could be introduced gradually to minimise the disruption.
• Nearly 18% of Italian bank loans are non-performing, three times the euro-area average.