No, Italy's not going to trigger a global collapse

Let’s just take some basic math: at 4 percent rates, that new refinancing will cost $8 billion a year. At 7.5 percent (near where rates are now), that will cost $15 billion. The difference: $7 billion. And that is out of an economy greater than $2 trillion dollars. Over the next five years these extra costs might be as much as $100 billion, out of what should be about $10 trillion in total output. Translation: even at these elevated levels—a global crisis we are told—the extra expense of financing Italian debt is a grand total of 1 percent of overall Italian output…

Italy needs perhaps $650 billion to allow it to avoid tapping public markets for the next three years. That is a decent sum, but more than within the ability of Italy, in conjunction with the eurozone, to obtain—and that is a worst cae. It is not a “game-ending” sum of money. It is not on par with the trillions of dollars of derivatives that companies such as AIG and Lehman had put into motion in 2008. It is a big number, but it is not that big a number, and when you look at actual Italian borrowing costs right now—that extra $15 billion cited above—the number becomes much smaller indeed…

The good news is that the departure of Berlusconi could be a tonic that awakens Italy from a stupor of lassitude and indifference. The bad news is that the financial world—which has an inordinate ability to bully the real world—remains wedded to hysterical assessments of stability versus collapse. Italy, Greece, and the eurozone are adjusting to the imperative of greater political union forced by the economic union. That is a hard adjustment. It is not the same as collapse.