Three charts show how tough things are for European banks

More than eight years after the collapse of the global financial system, Europe's banks are still struggling — and things may get worse.

The latest threat to euro zone banks comes from Italy, where Monte dei Paschi, the world's oldest bank, is running out of cash. On Wednesday, the bank disclosed that unless it gets fresh capital, it will be insolvent within four months. Previously, it was saying it had enough cash to last 11 months.

The bank's failure would threaten the savings of thousands of Italians and reverberate through the rest of the Italian banking industry, which is already saddled with a third of the euro zone's bad loans.

That news came as the Italian parliament approved a 20 billion euro ($20.89 billion) bank rescue, funded with borrowed money. Italy's debt burden, which comes in at about 133 percent of its gross domestic product, is already the second highest in the euro zone after Greece.

Such a bailout would buy some time, but would do little to reverse the economic forces that continue erode the financial strength of Europe's banks, especially those outside the core economies of Germany and France.

Political forces also pose a persistent threat. British voters' decision in June to leave the European Union has prompted voters in other countries to consider similar moves.

And much as U.S. voters' economic anxiety propelled President-elect Donald Trump to the White House, Europe's malaise has given strength to the de-globalization movement there.

Prime Minister Matteo Renzi resigned after Italian voters rejected a referendum calling for reforms intended to spur growth. The vote was seen as a victory for Italy's nationalist Five Star Movement.

"If Italy moves out of the euro zone and away from the European Union, the economic and financial implications will throw European economies into a depression," said Carl Weinberg, chief economist at data analysis firm High Frequency Economics.

There's little indication that the economic pressures straining EU ties will ease any time soon.

Despite moves by European central bankers to boost growth by slashing interest rates, much of Europe outside Germany, France and the United Kingdom remains stuck with little or no economic growth.

That economic stagnation is fueling the financial anxiety of Europe voters.

Then-Prime Minister Matteo Renzi speaks after the Italian referendum on constitutional reforms, Palazzo Chigi, Dec. 5, 2016, Rome.
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Then-Prime Minister Matteo Renzi speaks after the Italian referendum on constitutional reforms, Palazzo Chigi, Dec. 5, 2016, Rome.

It's also crippled many businesses with loans they can't pay back. U.S. banks recovered relatively quickly after aggressively writing off bad debt left by the 2008 mortgage crisis, but bankers throughout Europe were slower to get those loans off their books. Now, many are weighed down by billions of euros in bad loans that will likely never be repaid.

Sluggish economic growth has cut into the demand for new loans, which has hammered European bank profits. Ultra-low interest rates have prompted many companies to borrow in the credit markets by issuing bonds, further cutting into loan demand.

Weak profits, in turn, have further hampered efforts by Europe's bankers to rebuild the capital they need to write off bad debts. Now, as the U.S. Federal Reserve embarks on a new policy of gradually raising interest rates, European bankers will continue to struggle with the low profit margins generated by low rates.