The spread between German and Italian 10-year debt is almost back to the 2% mark, near the top of its 12-month range.

With $2.2 trillion in total government debt, Italy has a debt load equal to Germany’s but with an economy half the size. Its banking system remains saddled with nonperforming loans equal to 20% of the total portfolio, which means that the solvency of the system is in doubt.

Italy’s political system remains incapable of carrying out economic reforms. At some point the European Central Bank will stop expanding its balance sheet. Something has to give. Asia Unhedged wouldn’t own Italian assets just now.