Under a deal agreed over the weekend, the “good” assets of the banks will be transferred to Intesa Sanpaolo, Italy’s leading retail bank, which is taking them on for just €1.

Guarantees worth €12bn have been given to protect against any unexpected losses. Intesa will also receive €5.2bn from the Italian government to ensure its capital ratios are maintained.

The European Commission has approved the measures under its state aid rules but banks have been liquidised under Italy’s national insolvency procedures avoiding the imposition of potentially harsher European Union terms.

In a statement, Intesa Sanpaolo said the deal “makes it possible to avoid the serious social consequences that would have otherwise derived from compulsory administrative liquidation proceedings for the two banks”.

It added: “This intervention will safeguard the jobs at the banks involved, the savings of around two million households, the activities of around 200,000 businesses financially supported and, therefore, the jobs of three million people in the areas which record [Italy’s] highest economic growth rate.”

Italy’s economy and finance minister Pier Carlo Padoan said the deal was the best available option.

"Those who criticise us should say what a better alternative would have been. I can't see it," he told reporters on Sunday.

Margrethe Vestager, EU commissioner for competition policy, said: “Italy considers that state aid is necessary to avoid an economic disturbance in the Veneto region as a result of the liquidation of BPVI and Veneto Banca, who are exiting the market after a long period of serious financial difficulties.”