Saturday, November 5, 2011
Italy is under pressure from the bond markets, and Silvio Berlusconi is under pressure from his counterparts in France, Germany, the US, and the IMF. This is the big enchilada. If Italy goes--and at a 450 basis point spread over Germany, it's on the brink--France, which has considerable bank exposure to its southern neighbor, will be in serious difficulty.
Despite the great show of Franco-American solidarity at the end (see previous post) and polite nods to Europe's "wisdom and ability" by Hu Jintao, the message from the rest of the world was that Europe's problem is Europe's to solve. Alain Faujas's analysis in Le Monde confirms my sentiment. The problem is that I don't share this confidence in Europe's ability to muddle through. Things will therefore have to get worse before they get better, that is, before a deeper level of cooperation is forced on national leaders who are still too focused--and who can blame them?--on saving themselves.