Will Italy's Economy Make It Beyond This Week?

Many news outlets have been reporting on the "euro crisis."  Within the past few weeks, attention has been diverted from Greece to Italy, primarily because Italy's economy, which is the eighth largest economy in the world, has a debt that well exceeds 100% of its GDP ($1.9 trillion in debt, which is six times the amount of Greece's).  Saying that the eurozone only has days might seem bleak or alarmist, but by observing what is going on in that region in the world, it could very well be in the realm of feasibility.

Looking at Italy's sorry excuse for a bond auction, Italy has seen Euro-era high interest rates on its bonds, which does not bode well for its recuperation because it's a measurement of confidence in Italy's economy.

Does the European Central Bank (i.e., Germany) underwrite Italy's debt?  I know Germany has the healthiest economy within the eurozone, but I'd guess that Germany is sick of being expected to bail out the PIGS.  And even if Germany decides to help, it's a safe bet that many strings will be attached.  An extreme to not helping might be kicking Italy out of the eurozone and having it implode on its own.

Maybe the International Monetary Fund (IMF) can help out.  This would be a high-risk investment.  Even if risks were ignored, Italy has issues with its political institutions.

If Mario Monti can garner enough legitimacy to pressure the central bank to lower its interest rates, maybe it can solve the problem.  Or even the Fed can alter interest rates to prevent a meltdown.

Maybe banks have gotten too big and too dependent on government.  Global bank reform might be needed.

There are a lot of "maybes" in this blog entry, mainly because there is a whole lot of speculation as to what will happen to Italy, which has to do with the unpredictable nature of the financial sector.  Whether Italy is going to make it beyond this week requires as much clairvoyance as predicting in which direction and how much the stock market will swing today.  I'm not even going to begin to make a prediction on what will happen in Italy.  All I can tell is that it does not look good, and the only way to avert disaster is to do something drastic.