Italy’s finances have been bleak for some time now, with a recession that lasted for seven years resulting in the death of almost 25% of industry in Italy. With so much industry gone, Italians have been left with an economy that hasn’t grown in 13 years, and an unemployment rate of more than 11%.

The global population is aging, but Italy stands out from the pack, with 22.4% of its population being 65 years of age or older, and aging out of the workforce. Pair that with the fact that many Italian businesses are small and independently-owned, which limits growth and makes them more vulnerable to globalization, and you have an economy that seems unable to right itself.

As things have stagnated economically in the country, loans have progressively gotten worse. Italian banks have found themselves with £290bn in bad loans, with about 18% of loans in the country being classified as “troubled”, and more than 75% of those bad loans were given to companies. If banks write off those loans, it could force institutions into insolvency without the capital to course-correct.

Though the Italian banks received a bailout in 2013, European Central Bank has worked out an agreement for another bailout. Why would they commit more money to an economy that shows few prospects of recovery? It’s because one-third of the bad loans in the entire EU/euro-currency-using-area are in Italy. A collapse of Italian banks is likely to spread throughout the EU. Portugal, Spain, Greece and Austria all have serious issues with bad loans as well, and the collapse of Italy’s banks may cause a ripple effect throughout the EU at a scale large enough to make bailouts impossible. Newsmax states: “Euro area linked risks are definitively on the rise once again and it doesn’t look that’s going to change quickly.”

A referendum vote for Italy is upcoming, similar to the UK’s “Brexit”. From The Guardian: “In the days before it joined the euro, Italy would have been able to make itself more competitive by devaluing the lira. That option is no longer available. The risk, therefore, is obvious. Europe suffers a fresh slowdown as a result of the shock imparted by Brexit. An already weak Italy suffers more than most and its banks start to fail. Small investors are told that European rules mean that they have to shoulder some of the losses.”

If Italy were to leave the euro, it is possible that the single currency could collapse. Foreign holders of Italian debt would be paid in the equivalent amount of lira, which would likely devalue.  From the Financial Times: “Since banks do not have to hold capital against their holdings of government bonds, the losses would force many continental banks into immediate bankruptcy.” And Germany, the strongest economy in the EU, “would then realise a massive current account surplus also has its downsides. There is a lot of German wealth waiting to be defaulted on.”