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Resolving Europe’s Banking Crisis in Italy

Reichlin, Lucrezia, Vallée, Shahin, (2016), “Resolving Europe’s Banking Crisis in Italy”, Project Syndicate, 14 October

The European banking sector is crippled and highly fragmented. Though its problems are more acute for some countries and financial institutions, the sector runs on a level of profitability that is, on average, lower than its cost of equity and maintains a stock of non-performing loans and hard-to-value assets large enough to undermine its capitalization for years to come. Italy is a case in point. Not only is its dysfunctional banking sector undermining economic recovery and inhibiting investment; the sector’s troubles are the sharp end of a problem that affects the entire eurozone.

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