EU backs bailout of troubled Italian bank

European Union regulators said Thursday that they had reached an agreement in principle on a draft plan that would allow Italy to inject capital into the troubled lender Monte dei Paschi di Siena.

The deal would allow the Italian government to provide capital under a so-called precautionary recapitalization, which would require that the bank be profitable in the long term and that it restructure to ensure its viability. That would allow Monte dei Paschi to comply with EU rules on providing so-called state aid, or government support, for struggling businesses.

“This solution is a positive step forward for [Monte dei Paschi di Siena] and the Italian banking sector,” Margrethe Vestager, the EU’s competition commissioner, said in a news release, referring to the lender. “It would allow Italy to inject capital into [Monte dei Paschi di Siena] as a precaution, in line with EU rules, whilst limiting the burden on Italian taxpayers.”

The bank, Italy’s oldest, was the worst performer last year in European stress tests, which check lenders’ ability to deal with major financial crises. Monte dei Paschi sought help from the Italian government after it was unable to persuade investors to inject additional capital into the bank at the end of 2016.

In December, the Italian Parliament approved a bailout fund of $22 billion, for the country’s weakest banks, including Monte dei Paschi.