SIENA, Italy (Reuters) - In 1624, the Medici Grand Duke of Tuscany rushed to the defense of depositors of a bank that was by then already 152 years old, Monte dei Paschi di Siena, guaranteeing their savings at a time of economic crisis.

The entrance of Monte dei Paschi di Siena bank's headquarter is seen in downtown Siena July 1, 2016. REUTERS/Stefano Rellandini

Nearly 400 years later, Italian Prime Minister and fellow Tuscan Matteo Renzi aims to do something similar as the world’s oldest bank and Italy’s third-largest lender again threatens the region’s savers.

This time the stakes are much higher.

The collapse of Monte dei Paschi could not only impoverish thousands of ordinary Italians, it could lead to a wider banking crisis, help tip Renzi from power and provide another strong jolt to the European Union, already reeling from Britain’s referendum vote to leave the group.

“The government must assume its responsibilities, save the bank and its investors, otherwise this gangrene will spread to the rest of the system,” said Romolo Semplici, a 58-year-old real estate entrepreneur whose 22,000-euro investment in the bank’s shares is now worth less than 200 euros.

“I’ve always been pro-European, but if Europe doesn’t protect its own citizens then we should think twice if this the kind of Europe that we want to be in.”

Government sources say Italy is considering options to prop up the bank, including a state guarantee that would enable the bank to raise money it would otherwise struggle to secure from skeptical investors. Many bankers say the bank will inevitably have to raise around 3-4 billion euros ($3.3-4.4 billion).

Monte dei Paschi declined to comment for this story.

Officials in Brussels, a world away from the medieval cobble-stoned alleys of Siena, one of Italy’s most popular tourist centers, may stand in Renzi’s way.

A state rescue of Monte dei Paschi would be the first real test of EU rules limiting the use of taxpayers’ money to bail out investors. The rules require holders of the bank’s shares and junior debt to bear some of the losses. Depositors with more than 100,000 euros would also be hit.

The bank’s share price has halved since Britain voted on June 23 to leave the EU, as investors stampede out of Italian banks on concerns that Brexit could send Italy back into recession and saddle them with even more bad debts.

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Brussels understands Renzi’s concerns that sticking to the rules means hurting thousands of Italian households and generating a wave of public anger in his home turf, a stronghold of his ruling Democratic Party.

It is prepared to allow his government to reimburse households for their losses, given that Italian banks rely much more heavily on them than other EU countries, but it will not suspend the rules altogether, according to Brussels officials.

That is cold comfort for Renzi, who fears steep losses among Monte dei Paschi investors would dash all hope of accomplishing his most ambitious reform: a constitutional overhaul of Italy’s political system.

He has vowed to resign if he fails to win an October referendum on the reforms. Even without a banking crisis, opinion polls show his chances of success are slim.

‘DADDY MONTE’

In Siena, where the bank has its headquarters in a 13th century fortress, anxious investors and local authorities want the government to ride to the rescue, even if it means squaring off with Brussels.

“It’s paradoxical that after Brexit, Europe’s banking authorities are effectively helping destabilize the market by opposing Italy’s attempt to strengthen the financial system and safeguard its customers,” said Siena’s mayor, Bruno Valentini.

Monte dei Paschi has been in dire straits since the costly acquisition of a regional rival stretched its finances to the limit on the eve of the global financial crisis, which plunged Italy into its worst post-war recession. It racked up large losses from derivatives trades and accumulated 47 billion euros in bad debts.

The lender sent fresh tremors through Italian banking this week when it revealed that the European Central Bank wanted it to cut its bad loans by 40 percent in two and a half years, a demand that can only be met through yet another capital-raising.

For the people of Siena, who have already seen the bank raise 15 billion euros since 2008, disbelief turned to anger.

“I feel betrayed,” said Elena Andreini, 49, a former employee at the bank whose job was outsourced in 2014 in a drastic cost-cutting plan.

Sitting near a shuttered Monte dei Paschi branch, Andreini said she had lost nearly 40,000 euros after the bank paid part of her bonuses and severance pay in shares. With 600 colleagues, she is suing to have her old job back, counting on the government to rescue the bank.

Founded in 1472 to lend to the needy, Monte dei Paschi is known in its home town as “Daddy Monte”. It remains Siena’s top employer, despite the thousands of job cuts in recent years.

It has long been a bedrock of the local community, sponsoring the city’s soccer and basketball teams -- now both bankrupt. It even guaranteed relatives of dead employees a job at the bank, said Andreini.

Its huge influence and patronage was due to its links with a banking foundation of the same name, one of several politically connected, charitable entities that were endowed with stakes in top Italian banks as lenders were privatised in the mid-1990s.

Most foundations diversified their investments. But until 2011, the Monte dei Paschi foundation kept its majority stake, influencing bank board appointments and management in a tangle of finance and local politics many blame for the bank’s woes.

In good times, the bank’s dividends allowed the foundation to fund projects in and around Siena, from a biotech facility to the training of horses for Siena’s famous Palio horse race. But the crisis has forced it to sell shares and cut spending.

“This wasn’t just a bank. It was as good as bread for this city. Now everything’s ruined and it feels like Siena is dying too,” Andreini said.

(This version of the story was refiled to move apostrophe in headline)