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Ashoka Mody

Italy Needs to Wake Up and Fix Its Banks

The euro area’s most vulnerable economy is heading into a storm.

Let it die.

Let it die.

Photographer: Geraldine Hope Ghelli/Bloomberg

The renewed turmoil in financial markets should send Italy’s leaders an urgent message: They must speed up a costly and possibly disruptive repair of their fragile banks to prevent even greater costs and disruption later.

When Turkey’s currency plunged last week, Italian bonds and bank stocks were among the first to feel the repercussions. In fact, Italy has limited exposure to Turkish risk. The real reason for market skittishness lies elsewhere: a perfect financial and economic storm is gathering force.