The Italian job

INVESTORS around the world are extraordinarily nervous. Yields on ten-year Treasuries fell to their lowest-ever level this week; buyers of 50-year Swiss government bonds are prepared to accept a negative yield. Some of the disquiet stems from Britain’s decision to hurl itself into the unknown. The pound, which hit a 31-year low against the dollar on July 6th, has yet to find a floor; several British commercial-property funds have suspended redemptions as the value of their assets tumbles. But the Brexit vote does not explain all the current unease. Another, potentially more dangerous, financial menace looms on the other side of the Channel—as Italy’s wobbly lenders teeter on the brink of a banking crisis.Italy is Europe’s fourth-biggest economy and one of its weakest. Public debt stands at 135% of GDP; the adult employment rate is lower than in any EU country bar Greece. The economy has been moribund for years, suffocated by over-regulation and feeble productivity. Amid stagnation and deflation, Italy’s banks are in deep trouble, burdened by some €360 billion ($400 billion) of souring loans, the equivalent of a fifth of the country’s GDP. Collectively they have provisioned for only 45% of that amount. At best, Italy’s weak banks will throttle the country’s growth; at worst, some will go bust.