George Friedman

For much of the fourth quarter of 2011, it appeared the eurozone was doomed. Debt was piling up for several key states, and those with the ability to assist lacked the political will to do so. But the European Central Bank (ECB) stepped in in December with measures that have postponed -- not solved -- the European crisis.

Italy's Debt Crisis

The core of the Continent's ongoing problems is that most of its wealth is in the north, while the region's periphery cannot grow without outside credit. That credit was made available with the creation of the eurozone in 1999, putting member states into the same capital pool. Many states -- most notably Greece, Italy, Spain, Portugal and Ireland -- were able to access credit in unprecedented volumes, generating debt loads that are proving unsustainable. Barring extensive, ongoing, outside financial support, these states and much of the European banking system will go bankrupt.

Starting in early 2010 these inconsistencies began ripping through the facade of European stability, and it became obvious that sovereign defaults were imminent unless outside support became available. The question became from whence that outside support would come -- or if it would come at all. The Northern Europeans have sought to limit their exposure to the financial troubles of the periphery, grudgingly granting assistance only when the debt loads threatened the disintegration of the eurozone itself. Such irregular aid was sufficient to manage the financial problems of the small states of Greece, Portugal and Ireland -- whose combined bailouts only totaled about 430 billion euros ($545 billion). However, as the end of 2011 approached, it became clear that the next country likely in need of a bailout was Italy -- and conservative estimates put the cost of such a bailout at 800 billion euros, not even taking into account the weakness of the country's multitrillion-euro banking sector.

George Friedman

George Friedman is the CEO and chief intelligence officer of Stratfor, a private intelligence company located in Austin, TX.

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