Italy's bank shares have been plunging, shaking the financial foundations of the euro zone's third-largest economy and threatening contagion to other EU nations. As Hayley Platt reports, the crisis could also push Italy back into recession.
Monte deI Paschi bank has been in business since 1472. But markets it seems have little respect for age. Italy's banking sector index has fallen 30 percent in the past 12 days. And losses since the start of year are almost double that. (SOUNDBITE)(English) CIBC, HEAD OF FX STRATEGY, JEREMY STRETCH, SAYING: "I think it's endemic of the problems of the European banks as a whole that there is this liquidity shortfall which perhaps contrasts with banks certainly in the U.S. and to an extent in the UK as well." It was the UK's vote on EU membership that triggered the crisis. The market plunge came as banks were struggling to deal with 360 billion euros of doubtful or bad loans - that's equal to a quarter of Italy's GDP. Rome is in talks with Brussels to devise a plan to recapitalise its lenders. But anti-bailout rules may have to be bent by Brussels and Germany may not like that. (SOUNDBITE)(English) CIBC, HEAD OF FX STRATEGY, JEREMY STRETCH, SAYING: "I think that will be something of a concern that if there were to be a systemic failure in Italy on a major scale there would be that risk of contagion spilling out through the other European banks." It all makes the Prime Minister's position even more precarious. Matteo Renzi's promised to resign if he loses a referendum in October on constitutional reform. Recent opinion polls suggest he could well do so. And another momentous referendum isn't what the global economy needs at the moment.