Italy and Greece are financially insolvent and their governments are in a real mess. Austerity programs are being forced on both countries, and their citizens are not very happy about the coming cuts.
The money was borrowed and spent. When you read the papers, there is a mention that if Greece and Italy were to default, it could take other countries with them. At this point, you have Germany and France stepping in to rescue their fallen comrades.
The real question not being asked, is who loaned all of the money for this drunken orgy? Germany and France come to mind, not to mention a few State retirement funds. What is happening here is the same as Jingle mail in the US. It’s a little like buying a million dollar home with no money down and you lose your job. A bank that does too many of these finds themselves out of business real quick.
The problems in Italy and Greece are rather obvious. Problems in France and Germany are nonexistent, if they can get Greece and Italy to make their "house payments." Here in the US, everyone thinks that the Government is trying to bail out the homeowner and that is just not the case, they want them to continue paying their outrageous mortgages, with minor modifications. This keeps the banks paper current and on the books as written with no markdowns.
The big players in Europe, France and Germany financed these unsecured loans. The European banking system faces ruin, if and when the PIIGS stop paying. To say that the banks lose in this case, is rather an understatement, it is their depositors that take the hit. The banks only loan your money, and if they lose it all, that’s life. Look for problems at Deutsche Bank and Societe Generale.
Everyone knows the PIIGS are broke and that is no big deal. What's not realized, is that the people in trouble, aren't the deadbeats, but rather the bank depositors that had funds to loan. The loans will not be repaid, but that is less than obvious with all of these proposed repayment plans.
Nobody is going to go to prison over this, being incredibility stupid or optimistic and running a bank, is not against the law. The question you need to ask is your money safe in a Euro bank? The answer; "Not Sure," could start a run on the Euro. Retirement could be further away than you envisioned.