Fra il dire e il fare c'è di mezzo il mare...

What are the implications for the U.S given the weaknesses in Eurozone? Think about the market turbulence over Greece, Ireland and Portugal, and multiply.

All of this means the U.S. needs another round of stress tests. It would be wise for U.S. banks to raise enough capital now to withstand any trans- Atlantic storms, such as say hmmm Italy!

Italy has close to 2 trillion euros in debt outstanding. It’s inconceivable that Germany or the IMF could provide a rescue to protect its creditors. Such a package would have to involve loans and guarantees of at least 500 billion, and possibly 1 trillion, euros to impress the markets. This would be a significant fraction of Germany’s gross domestic product of about 2.5 trillion euros. With a debt-to-GDP ratio of about 80 percent, Germany’s ability to take on new debt is limited. Also let’s not forget east of Berlin issues.

The Netherlands, Finland and Austria, combined with Germany, have a GDP of about 3.5 trillion euros. France adds 2 trillion more, but its debt, already 85 percent of output, is expected to grow over the next several years.

Europe does not have enough fiscal firepower to handle an Italian crisis -- at least in such a way as to protect creditors completely. Why would Germany or other EU countries lend to Italy, particularly when its politicians show no sign of coming to grips with their reality?

Italian banks aren’t likely to fail. Regulators will offer plenty of forbearance, so the banks won’t have to value assets at true market values. But the overhang of sovereign-debt losses and a potential ratings downgrade (after a recent warning on Italy from Moody’s Investor Service) could cause banks to cut back on private-sector lending. This would lower GDP growth and further worsen Italy’s debt-to-GDP projections.

What Italy needs is industry, jobs, real value creation equaling real growth. Debt management without social transformation will only delay an inevitable default.