The European crisis is no longer a European crisis. It has morphed into something that could easily engulf the global economy. Because of its size, because it involves governments and not just banks, and because it comes at a moment of great weakness, this crisis is more dangerous than the one posed by the collapse of Lehman Brothers, which filed for bankruptcy three years ago this week.
The real problem is Italy, not Greece. Greece is a nano-state, representing 2 percent of the European Union’s gross domestic product. Italy is a G-7 country. Italy’s debt is 1.9 trillion euros, or 120 percent of its economy and greater than the debts of Spain, Portugal, Ireland and Greece combined. Italy’s bonds are trading at 4 percent more than those of Germany, unprecedented in the euro’s history and unsustainable. Italy is too big to fail but might also be too big to bail.
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