What's going on?

In a piece of news that�s reminiscent of the 2008 financial crisis, the Italian government has agreed to spend up to �17 billion to bail out two of the country�s struggling banks � and that�s a big deal for Europe�s banking sector.

What does this mean?

The bailout concerns two medium-sized Italian banks that have made a bunch of loans which are unlikely to get paid back in full, a problem they share in common with other banks in Italy and the eurozone. Somehow, without these loans being repaid, the banks still have to pay out money to their everyday customers when they withdraw their deposited cash.

By law, depositors must get paid back before anyone else, and one way that banks under financial distress can still meet depositor demand is to default on money lent to banks through bonds. But this isn�t happening here. Instead, the Italian government will pass on taxpayer money so the banks can pay their �senior� bondholders in full � a move that is provoking some controversy.

Why should I care?

The bigger picture: The era of taxpayer bailouts is supposed to be over in Europe.

A few years ago, the EU built a rulebook that was designed to put an end to taxpayer-funded bailouts. It�s part of an effort to create one set of rules for all eurozone banks to follow, but Italy�s bailout, achieved via a loophole, breaks the spirit of those rules. This could threaten the establishment of a eurozone-wide banking system (an important project for the EU).

For markets: European stocks reacted positively.

In previous years, this scenario would have likely spooked investors throughout Europe amid fears that more lenders might be on the verge of failure, thus hurting the overall economy. However, the distinct lack of contagion within the banking sector helped lift European stocks on Monday.