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Clear thinking needed
Italy’s bad debts
The government tries to relieve banks of non-performing loans
BANKS in Italy fared better during the financial crisis than many of their peers, sparing Italian taxpayers the bail-outs their counterparts in other countries had to shoulder. But although they stuck to their cautious business models and avoided fuelling a big housing boom and bust, Italy’s protracted recession has enfeebled them. It has caused bad loans to soar, which in turn has prevented them from supporting a still weak recovery with new lending.
The burden of non-performing loans (NPLs) in Italy is now immense: they amount to €350 billion ($370 billion), the equivalent of 21% of GDP. With these unproductive assets tying up their capital, Italian banks are unable to extend new credit to businesses. In fact, they are lending out less in an effort to shore up their balance-sheets (see chart).
The government would …