What’s Next For Europe?

McArdle panics:

I am very much afraid that the euro zone is about to plunge us into phase two of the global financial crisis–and that as with the Great Depression, phase two may be even worse than the dismal years we've just endured.    

Krugman explains how Italy committed an economic mistake usually reserved for developing nations. And Tyler Cowen says austerity can't save Italy:

The only answer, if that is the right word, is a central bank.  Right now central banks need to be doing everything they can to avoid a second Great Depression.  I talk to many smart people, and I am continually surprised how many of them do not realize the urgency of the current situation.

But the European Central Bank doesn't sound very eager to act. J.O. at Free Exchange imagines what would happen if Italy exited the Euro:

It would be a gigantic financial shockwave. Once departure by Italy were a serious prospect, there would be runs on its banks as depositors scrambled to move savings to Germany, Luxembourg or Britain, in order to avoid a forced conversion into the new weaker currency. The anticipated write-down of private and public debts, much of which is held outside Italy, would threaten bankruptcy of Europe's integrated banking system.

Zachary Karabell tells everyone to chill:

We are now in a period of adjusting the reality of ever-present risk that the financial world, connected globally and electronically without circuit breakers, might fail. One day it is Greece, today it is Italy, and tomorrow it may be France or the United States—or Iran. We will over time learn to treat those risks with greater equanimity. For now, we at least need to stop and realize that Italy is a rich and vibrant society; a land of immense beauty and culture, with a fair number of viable and supremely successful industries. But is not the hinge of global prosperity; it matters, but not that much.