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Is Spain the next domino to fall if Italy goes? No, it will be the whole world

A possible Italian bankruptcy could bring on a second Great Depression

"It is the end of a nightmare," says the writer Umberto Eco about Silvio Berlusconi's departure. But it is not the only solution to the Italian problem. In fact, it could be the beginning of a worse nightmare.

Why did Italy reach the point of no return? Didn't the European Union have a definitive solution? Who will be next? Will the euro disappear forever?

In other words, what is happening?

"Spaghetti Western." The markets have made it clear: if Berlusconi did not go, there would be disaster. His vague resignation is not the real answer either, but at least it gives the Italians some breathing room to look for better solutions. Despite what was said at the last EU summit, there isn't enough money now in the European rescue plan for a Roman bailout. Only the ECB, using its power and flexing some muscle, can help prevent Italy from going bankrupt if things don't calm down by the departure of Berlusconi. The contagion effects of an Italian crisis would be 15 times more catastrophic than Lehman Brothers' bankruptcy.

Size does matter. Italy is the seventh largest economy in the world and the third biggest in Europe. It is also the third largest public debt market with some 2 billion euros held by nervous investors. If Italy goes ? with its 10-year bonds financed at 7 percent ? the next to fall would be the world economy. The global financial system is incapable of resisting this Spaghetti Western with such a dramatic ending. And it appears that the fuse has already been lit. Only a few days ago, MF Global announced that it was declaring bankruptcy mainly because of the European debt crisis. Another gigantic fund, Jefferies, announced that it was getting rid of half of its euro-zone bonds. The markets have already begun to vaccinate themselves to prevent contagion: euro zone debt has been stigmatized.

Apocalypse Now... Spanish style. If Berlusconi steps down and a coalition government succeeds in restoring credibility and paving a way so that Rome gives the markets a calendar of clear and precise solutions ? something that Berlusconi has been unable to do in the past few months ? Italy's risk premium would drop and the country could embark on a virtuous circle of growth, confidence and credibility. Yeah, right! It is a lot easier to write about it than to actually do it. If Italy collapses, it would be a disaster for the EU and the euro (and if the euro goes, so does Europe, as Angela Merkel has been repeating over the past few days). At least if Italy goes, there won't be any more guessing as to who will be next. Those who believe that Spain will be the next domino to fall are wrong. Italy would bring the entire world down, provoking an unprecedented global financial crisis, or even a new Great Depression, which would be much more catastrophic than the first one caused by the 1929 Stock Market crash because this time around there isn't any public money to help defray the effects. Nationalist tensions and citizen disenchantment are also contributing to this time bomb.