A bail-in would have a catalyzing effect, like political nitroglycerin. If and when it happens, expect support for anti-euro Italian populist parties to skyrocket.
Italy has one of the most indebted governments in the world. It’s borrowed over $2.4 trillion, and its debt-to-GDP ratio is north of 130%. (For comparison, the US debt-to-GDP ratio is 104%.)
First, the European Central Bank will have to put the printing presses into overdrive to accelerate its program to buy Italian government bonds. It will also create an incentive for other governments to be reckless, assuming the ECB has their backs. This, of course, will hurt the value of the euro.
The alternative is that the Italian government will have to acknowledge its bankruptcy. This would humiliate the mainstream parties and vindicate the populist parties, which have made defaulting on Italy’s unsustainable debt one of their planks.
Either outcome is very bad news for the Eurocrats.