Europe's Banking Union Fails Its Latest Test

The European Commission's decision to let Italy spend up to 17 billion euros ($19 billion) to clean up the mess left by two failed banks is bad news -- and not just for Italy's taxpayers. It's also a setback for the euro zone's putative banking union, and for the European Union's efforts to supervise anti-competitive state aid.

Over the weekend, the Italian government wound down Banca Popolare di Vicenza and Veneto Banca, two regional lenders struggling under the weight of non-performing loans. Intesa Sanpaolo, a rival, bought the banks' good assets for one euro, and was promised another 4.8 billion euros in state aid to deal with restructuring costs and bolster its capital ratio. Italy's taxpayers get to keep the bad loans, which could end up costing them another 12 billion euros (though the government believes it will be much less).