Italy is in trouble. Just how much trouble may be inferred from the fact that the interest it must pay on bonds is nudging 7%, and this when it is running into a two-year period during which it must roll over about a quarter of its vast debts. 7% was the magic figure which tipped Greece, Ireland and Portugal into bail-out territory. But these were relatively small economies whereas Italy's is much much bigger, far to big to rescue with the Eurozone's pifflingly small 400 billion euro bail out fund. Attempts to leverage the fund with input from the BRICS countries have come to nothing; somewhere in a departure lounge or munching airline food, Christine Lagarde is roaming the world trying to find countries whose citizens don't have a state pension at all willing to pay into a fund to help those whose populations can retire at 55. Good luck with that, Christine.
Now here's Megan Greene, a colleague of Dr. Doom, Nouriel Roubini, on the Today programme telling it like it is. "I think there are only two possible ends to this crisis. One is the ECB stepping in, providing massive amounts of credit easing. The other is fiscal union. It would be illegal for the ECB to become the lender of last resort. If it were to happen, someone would take it to court and win that case. Germany just wouldn't allow the ECB to start printing money."
Ms Greene undoubtedly knows a great deal more about economics than I do, but I think she is wrong about this. There are three possible ends, not two.
The ECB could step in, start printing money and use it to buy Italian bonds, but as she says that's unlikely for political and legal reasons; it's also true that fiscal union (of which an interventionist ECB would be a fundamental part) would be necessary to make monetary union work, and might actually do so. But fiscal union would be a seismic shift in the way the Eurozone operates; it would need negotiation, consensus and ratification by national parliaments. Even if these things were forthcoming, and even if the leadership so far glaringly absent from this debacle were miraculously to appear, they would take time to arrange. But the bond markets won't wait.
That's where my third possibility comes in. A third way it could end would be by the Euro collapsing. At this stage that seems to me to be most likely. William Hills are apparently offering 2/1, or thereabouts, that Greece will have left the Euro by the end of 2012. These would have struck me as generous odds even if the bet had specified the end of 2011. I can't see any way in which Greece will still be in the Euro by the end of 2012. This has got to be worth £50 of anyone's money.
