First it was Grexit, then it was Brexit. Now the looming threat for Europe is Quitaly, the fear that Italy might decide it has had enough of the single currency and go back to the lira.

Put simply, Italy’s economy is floundering and has been for the past two decades during which time there has been virtually no growth and Italian goods have become less and less competitive in export markets.

Sluggish growth and high levels of unemployment are reflected in the high level of non-performing loans that are now hobbling Italian banks. Potential bad debts have almost doubled to €360bn (£300bn) in the past five years and now account for 18% of all outstanding loans.

Non-performing loans of European banks Non-performing loans of European banks.

What is clear, though, is that the non-performing loans reflect a non-performing economy. They are the symptom of the problem and not its cause.

Unlike Greece, Ireland or Spain, Italy did not go through a period of economic boom before the Great Recession of 2008-09. Instead, its performance has been unremittingly poor. The economy is 10% smaller than it was before the financial crisis and as a result unemployment is high, especially in the poorer southern half of the country.

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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.

Matteo Renzi’s centre left government loses power and is replaced by the Five Star Movement, which has pledged to hold a referendum on leaving the euro. Given the state of the economy, Quitaly could not be ruled out. If it happened, the single currency would collapse.