By Dom Serafini

 With a public debt of 1,928 billion euro –– or, for Americans, $2.5 trillion –– one wonders if the Italian economy could actually collapse if its government defaults on the most crucial repayment maturity obligations.

One precedent Italy could depend on is that of the American Congress, which lent $700 billion to bail out U.S. banks in order to avoid a collapse of the U.S. economy. With more than four times as much debt, an Italian default would cause a worldwide economic disaster: a prospect that is to be avoided at all costs.

A Greek default with a debt of just 270 billion euro is one thing, but the collapse of the world’s eighth largest economy (counting the underground GDP) is another. Indeed, the severity toward Greece’s austerity program served more as a role model than as a rule.

Following the example of the U.S. banks, which greedily speculated with toxic assets and were later bailed out, Italy could similarly prosper beyond its means by renegotiating its sovereign debt, increasing public expenditures and cutting taxes to stimulate growth. At this point, a bailout plan would be put in place with funds coming from the ECB, IMF, the World Bank and even BIS.

The appointment of banking-friendly technocrat Mario Monti as prime minister took place specifically because bankers know Italy is too big to fail and Italians would readily take advantage of such a position.

The realization that Italy is too big to fail undoubtedly occurred to former Prime Minister Silvio Berlusconi as well, but the fact that he wasn’t worried about Italy’s huge debt alarmed the bankers who forced his resignation.

Monti’s appointment was facilitated by Berlusconi’s weakness on three fronts:

He was discredited at the international level and vulnerable both on a financial level (his Mediaset Group is traded on the stock exchange) and on the judicial front (with six court cases out of a total of 31 still pending).

Helping secure the appointment of Monti as prime minister were also: A weak opposition to Berlusconi’s coalition, a group of small political parties that are corrupt and inept and a Parliament only interested in protecting its members’ privileges.

The bankers were also aware that they had little time left before Italians realized that their country would never collapse. This shortage of time called for quick actions, like increasing taxes and cutting spending. Going after real reforms would have taken too much time, since most of them effect politicians’ privileges and are thus not easily approved by Parliament.

So, even if on a financial level Italy could well emulate the U.S. banks’ bailout, on a political level, the country is in a default. And that is Italy’s real weakness.