The powers controlling Italy, namely the EU, have decided that this time of imminent recession in Europe is a perfect backdrop to start paying down Italian debt, at odds with all economic theory. So the new government has ordered that retirement ages be raised and pension benefits cut to satisfy the austerians.

A variety of links to articles and interviews on current topics that may, or may not, be of interest.

We have a better sense of the situation in Europe, or at least the game being played by Angela Merkel and the European Central Bank, in tandem. Merkel and the ECB, before acquiescing to any scheme involving Eurobonds or running the printing presses, want to tighten fiscal integration among Eurozone countries, with the attendant loss of national sovereignty and real penalties for breaking fiscal guidelines.

One of the on-going arguments across the blogosphere and even the entire world is whether the economic problems of the last ten years are more related to incompetence or basic corruption. I must say, just the last week has offered plenty of evidence for both views. For example, we had this article from Bloomberg yesterday (Tuesday, November 29) about how then Treasury Secretary Hank Paulson met with his hedge fund buddies and gave them the first class insider information on his plans to place Fannie Mae and Freddie Mac into “conservatorship.”

Six central banks took coordinated action to ensure liquidity for the global banking system. The European Central Bank, the Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland will provide lending of dollars to banks to ensure they can cover operations.

Until now, German bonds have been seen as the safe Euro debt that investors could still hold, but investors threatened to blow right by that safety valve today when they bought less than two thirds of the German bonds up for auction.

Silvio Berlusconi, the Italian leader whose government fell with pushing from Germany, France, and the central bankers, is now plotting his comeback but making sense: he’s saying the European Central Bank needs to do its job or the whole Eurozone will collapse — and he’s probably right.

We’re seeing a kind of bank run happening in Europe. The bond markets recognize that the European Central Bank is unwilling to save sovereign countries that cannot create their own money. So they’re just moving away from one country to the next, causing the cost of bond yields to rise to unsustainable levels. First it was Greece and Ireland and Portugal. Then it was Italy. Now it’s Spain.

The problem for the United States is that there’s no understanding of how much exposure US financial firms have to the expected fallout, especially if there’s a default event. JPMorgan Chase and Goldman Sachs announced their overall derivatives risk from sovereigns today, but wouldn’t pinpoint how much of that comes from Italy or Spain.

This could be the moment when the Euro union begins to collapse. Greek bonds are trading at astronomically high yields, and the yields on Italian bonds are nearing the danger zone. But bond yields for every country in the Eurozone spiked yesterday, including countries in no real fiscal danger. The bond market is in full feeding frenzy.