November 9, 2011 12:16PM

The End of the Euro?

Global equity markets are falling, with the Dow Jones Industrial Average down around 250pts. A benchmark 10-year Italian government bond is yielding 7.4%. Every country whose sovereign debt went over the 7%-mark has required a bailout. I was in Italy a month ago, and the yield was under 6% (still pricey for a developed country).

A bailout of a country Italy's size would be a gargantuan task -- probably a larger effort than heretofore. It is beyond the capacity of the EU. Italy's debt is just too large. I doubt China would purchase any real assets until labor-market reforms and pension reforms were enacted. China actually wants a return on its investments.

If the IMF gets involved, it would require massive new funds for which the US taxpayer would be on the hook for around 18%. I wonder how that would go over in the US House or even the Senate? That doesn't mean the Obama administration won't try to organize a rescue. The Fed has been backstopping the EU banks for some time.

Will the Euro survive? Will the global financial system survive?