By Jacob L. Shapiro
Summary Italy’s non-performing loan issue is now becoming common knowledge. The next step in the crisis is deciding who will be forced to deal with the repercussions of settling Italy’s impaired debt. That is a political question, and the answer depends in large measure on who holds Italian bank debt.
When we last addressed the emerging Italian banking crisis, the European Commission and Italy had at long last come to an agreement on how Italy could offload bad debt from its banks’ balance sheets while still meeting European Union regulations. Since then, there have been some newsworthy developments, including a large merger between Banco Popolare and Banca Popolare di Milano and a favorable European Central Bank (ECB) opinion on the Italian decree to reform Italian cooperative banks and offer state guarantees for the sale of non-performing loans. None of these developments, however, fix the non-performing loan (NPL) problem that led us to forecast an Itali