Italian Banks Need Stimulus, Frmr. Italian Treasury Head Says on CNBC

The former Head of the Italian Treasury, Lorenzo Codogno, believes there is still time for the E.U. to step in and help ailing Italian banks.
By Michael Sheetz ,

NEW YORK (TheStreet) -- Italy is facing a banking crisis as its ailing economic situation continues to worsen after recent reports of bad bank loans.

The former Head of the Italian Treasury, Lorenzo Codogno, believes the European Union must approve an injection of public money into one or more Italian banks.

"There must be an injection of public money into at least one bank, or possibly more than one, to stop the contagion because it has become a systemic risk problem," Codogno said on CNBC's "Fast Money" on Wednesday. "It's difficult to figure out how the situation can improve without any government intervention."

The Italian situation was "very fragile and vulnerable before Brexit," Codogno says. He believes the U.K. referendum to leave the EU created an event that sent ripples throughout Europe and "certainly affected the Italian banking sector more than others."

Codogno warns against the Italian government facilitating the injection of funds themselves and that it should happen via European rules. He believes "the debate now is whether you can do it outright without any bailing or if you have to go through some form of bailing." The outcome of that debate should be realized within the next few days.

"The risk is if we [Italy] have another major shock we may end up with another credit crunch or a significant slowdown in the growth of credit in the economy which would affect the pace of growth in the economy," Codogno added.

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