Italy's plan to shore up its banks could roil Europe

Rome

EVEN as Europe grapples with repercussions of Britain's vote to leave the European Union, a dispute over tens of billions of dollars is also threatening to roil the region's US$16 trillion economy.

The Italian government, according to some estimates, needs to spend US$45 billion to shore up its banks burdened with bad loans. Fears that European authorities will bar the government from providing that support are adding to the turbulence caused by "Brexit". It may seem difficult at first to understand how the lenders of a medium-size country, none of which are particularly large, or engage much in risky Wall Street activities, could be spreading fear through global financial markets.

But they are, and their problems reveal what can happen when well-intentioned regulations bump into reality. And this is creating tension among the leaders of Europe. The situation may drag through the summer, keeping investors around the world o…