Not a real cover, though the current issue of Economist has a similar one. Scapegoats always seem necessary when things start to fall apart; but Berlusconi is part cause (along with many others) and part symptom or emblem of the deeper problems.
So how bad is it? Are we over the edge, teetering just on the edge, or lumbering towards it? And if the last, can the train's momentum be stopped?
My take: we are lumbering towards the edge and our momentum might be stopped, but probably won't be. A full-out commitment from the European Central Bank (ECB) to act as the lender of last resort for all Eurozone sovereigns would settle the bond markets. The ECB could announce that it will target a 5% rate on Italian 10 year debt, and within a few days, that is where the rate will settle.
The ECB (like the US Fed, or the Bank of England) is the issuer of its own fiat currency. It can issue as much as it likes, in bills or in bonds. Anyone committed to doing business (and paying taxes) in Euros will accept this currency, and there is no limit to how much of this currency the ECB can print. The Germans know this, but they also know that this currency issuing/money printing can lead to hyperinflation, as happened to the Weimar Republic, and they fiercely oppose the ECB doing this. As a result, the ECB probably will not step up and claim a role as lender of last resort.
If not, then what? Most likely a partial breakup of the Eurozone, with Greece, Italy, Ireland, Portugal and possibly Spain leaving. The mess will be huge. Any number of banks will go under, which will spread the contagion across to the US. How fast? 3-6 months.
Not a pretty picture.
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