All the European austerity and bailout plans have not managed to stem the European debt crisis. In fact, the severity of the crisis has only increased over time with Italy, the world's eighth largest and the euro zone's third largest economy, now becoming the latest European nation to likely require a bailout.
Today's chart helps illustrate the risk of European debt by plotting out the 10-year government bond spread (versus the German Bund) for all the PIIGS (i.e. Portugal, Italy, Ireland, Greece, and Spain) from 2007 to the present.
For example, the Greek 10-year government bond yield (light blue line) is currently a whopping 32.5 percentage points greater than that of the relatively stable German Bund. That is a far cry from where it was back in the summer of 2009.
However, even more important is the status of Italy (dark blue line). Italy has €1.9 trillion ($2.6 trillion) of debt outstanding. This level of debt is greater than that of all the other PIGS combined. Due to the severity of the situation, the European Central Bank may ultimately be forced to print a significant amount of euros – something they are very much ideologically opposed to doing.
