The big problem is that Italy, with its dysfunctional politics and nearly €2 trillion, or around $2.8 trillion, in outstanding debt, has supplanted Greece as the biggest threat to European banks and the biggest source of investor anxiety. If Italy were to have trouble servicing its debt, no amount of fresh capital could protect the European banking system.
“Everything depends on Italy,” said Lüder Gerken, director of the Center for European Policy in Freiburg, Germany. “If Italy goes under, a recapitalization won’t do anything.” “Italy has to make fundamental reforms,” he added. If not, “then the euro is history.”
Like most of what emerged from Brussels, the plan to strengthen banks was seen as good, but not quite good enough.