The EU's Inflexible Bank Rules Risk an Italian Brexit

The fears of Brexit contagion may have seemed overblown after Spain's election a week ago. But as Italy's continuing banking crisis shows, the euro zone still faces major challenges. The EU must act fast to change the vernacular of austerity that has alienated voters and restricted the ability of national governments to put together policies for growth. Italy must be allowed to take a page from the Spanish playbook.

Spanish Prime Minister Mariano Rajoy's decision in 2013 to reject EU-style austerity in favor of corporate tax cuts and some labor reforms helped pull Spain out of its economic recession. Rajoy set up a bad bank to bail out the distressed good ones like Banco Popular and Banco Santander, stabilizing the sector and unlocking lending to the real economy. His center-right Popular Party has since suffered from a series of corruption scandals. But one convincing interpretation of the recent election in Spain, in which Rajoy's party received the largest share of votes, is that the mayhem created by Britain's vote to leave the European Union proved so disconcerting that Spanish voters were not willing to risk the country's recovery -- 3.2 percent growth in 2015 -- on a political fling.