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Italy Teetering on Brink of Disaster

Worried about the Monday open? You probably should be, but really, the S&P downgrade isn’t the big worry.

It’s Italy.

Italy has the third largest bond market in the world (after the US and Japan), and it’s teetering on the brink of disaster.

The belief in Germany is that existing bailout mechanisms aren’t sufficient to save the country and that expanding them isn’t the right idea, since at that point you’re talking about placing massive risk on Germany’s sovereign debt itself.

The last backstop is the ECB, which will be deciding TODAY whether it will begin intervention in the Spanish and Italian markets. Last week German leaders (not surprisingly) opposed this, however that was before Berlusconi came out on Friday with an announcement of accelerated austerity.

It’s also not clear whether, at the margins, ECB bond buying will be enough to halt the crisis, unless it really brings a gigantic bazooka to the game.

Read more: http://www.businessi…8#ixzz1ULfb2wIr

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