Domestic banks in the Mediterranean nation are already encumbered with some £1.3 trillion (€1.5 trillion) of public debt as the cash-strapped government in Rome grapple with a weak economy which tumbled back into recession at the end of last year. But in addition to the eye-watering figures on the books of Italian banks, financial institutions in the rest of Europe have lent more than £370 billion (€425 billion), according to new analysis of official figures by Bloomberg. Lenders in France are most exposed to a sell-off in Italy with £250bn (€285.5bn) in credit extended by French banks.
Half of this total (£125.5bn) has been lent by Paris-based BNP Paribas, according to Bloomberg.
German banks have extended £51.4bn (€58.7bn) worth of credit to Italy’s public and private sector while lenders in Belgium are owed £22bn (€25.2bn).
In the UK, Barclays has provided £15.2bn (€17.4bn).
This analysis of the exposure of European banks to Italy’s debt crisis comes as it emerged Rome’s borrowing costs briefly surged to a three-week high.
Michael Hewson, chief markets analyst at CMC Markets, said: “Italy has a huge debt burden and the government had hoped for better growth.
“At some point this year, Italy will flare up as problem once more.”
Data last week confirmed Italy’s economy had slipped into a recession in the fourth quarter of 2018, while manufacturing contracted for the fourth month running in January – suggesting that things could get worse for the economy.
And while the country is not yet facing financial meltdown, the populist government’s plans spending plans are expected to increase Italy’s already massive public debt.
The 2019 budget was approved by the Italian parliament in December after a bitter fight with the EU.
The populist government in Rome had vowed to push through its spending proposals, which included tax cuts, a lowering of the retirement age and a universal basic income, despite fierce opposition from Brussels.
But in the face of disciplinary action and fines, the Italian leadership eventually backed down and agreed to revise its plans to be closer in line with the EU’s fiscal rules.