Brussels toughened its stance against Italy on Monday, arguing that banks and not tax-payers should shoulder the burden of bank recapitalisation.

Amid fears about the health of Italy's banks which are struggling under the weight of non-performing loans, euro group chairman Jeroen Dijsselbloem said he was opposed to allowing Italy bailout its banks in breach of new EU bail-in rules.

“There have always been and always will be bankers who say we need more public money to recapitalise our banks and I will resist that very strongly because, again and again, it’s hitting on the taxpayer, again and again it is increasing sovereign debt on countries that are already heavily indebted,” he said ahead of a euro group meeting of finance ministers in Brussels.

Problematic

Instead the problems in the banks “need to be sorted out in the banks and by the banks,” he said. and “The easiness with which some of these bankers are saying, we need pubic money to sort out our problems - I think that’s really problematic.”

“We need leaders in the banks that address the problems themselves instead of saying, ah here you are politicians, have our problems. There has to come an end to this. “

The Dutch finance minister’s tough stance underlines the scale of the challenge facing Rome as it seeks to convince the European Commission to allow the government to break new bail-in rules which state that creditors, including depositors, must take losses in any bailout. The rules were introduced in the wake of the euro zone crisis as a way of bringing to an end the era of mass state bailouts.

Italy’s banks are nursing approximately €360 billion of non-performing loans, as the heavily-indebted economy continues to struggle.

A sell-off in Italian bank shares has intensified since the British referendum last month, with particular worries surrounding the health of Monte dei Paschi di Siena, the world’s oldest bank.

Aid

Speaking on his way into Monday's meeting, Minister for Finance Michael Noonan said the matter was an issue for the Italian authorities, the EU's competition division and the European Central Bank. "Directly putting money in would be considered to be state aid and it is not permissible at present," he said, adding that it was "a serious issue which we're watching very closely."

With ministers expected to discuss Spain and Portugal’s failure to meet budget deficit targets today and tomorrow, Minister Noonan said he did not support heavy sanctions being applied to the countries, though he did endorse the European Commission’s announcement last week that the two countries had not done enough to reduce their deficit. “It’s a matter of fact that that finding is being made and should be made.”

He noted that while Hungary had previously threatened with the suspension of EU structural funds, the measure was never applied. “There is a very clear road for both Spain and Portugal to follow... I expect that’s what will happen,” he said.

On the issue of Brexit, Minister Noonan said he expected British Home Secretary Theresa May to be named as Prime Minister "within the week if not within the day."

Calculations

He said that while calculations had shown that Brexit would reduce Irish growth rates by 0.5 per cent in 2017, this was only an estimation of the actual decision to leave. “What we cannot calculate yet is what the new arrangement between the United Kingdom and the European Union would be,” he said. He added that this would depend on the kind of relationship that would be negotiated - if the resulting relationship was close to the current situation where Britain remains in the single market and the free movement of capital and labour continued, the impact would be “very little,” bit a reversion to WTO rules and the reintroduction of hard borders would lead to a “quite severe” impact.

He said the complexity of the negotiations ahead meant that Taoiseach Enda Kenny was the right person to lead the negotiations.

“We need somebody who understands crisis management and understands international negotiations…we’re fortunate to have him and needless to say I stand four-square behind him. “