Italian banks have just been thrown a lifeline that could help the country’s ailing economy turn a corner.
Italy has agreed a plan with European officials to relieve the Italian banking sector of as much as 200 billion euros ($217 billion) in bad debts.
The eurozone’s third biggest economy was hard hit by the region’s debt crisis, and plunged into three years of recession that lasted until 2014.
Many loans turned sour during that period. Italy was left with one of the highest levels of bad debt in Europe.
Monte Dei Paschi — the world’s oldest bank — is at the center of the problem, with up to 40% of its loans gone bad.
Italy returned to growth last year, but the non-performing loans are still holding back the banks and crimping their ability to lend to business and households.
Shares in some of the banks have plummeted this year: UniCredit Group (UNCFF) is down 23.8% this month, UBI Banca has lost 23%, and Intesa Sanpaolo is 13% lower. The stocks started edging higher after the agreement was struck late on Tuesday.
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