Us laymen read all around that Italy's weak economy and its high government debt/high debt to GDP ratio is threatening the financial stability and health of Eurozone and EU. However, little is being explained by experts what exactly the real risk level is and various mechanisms either already in place or conceivably considerable are not sufficient to mitigate the risk. I am trying to understand this from an expert and non-partisan perspective.
From my perspective, the main question can be broken down into sub-questions, answers to which could help better understand the bigger picture.
- Under current circumstances, what is the level of government debt to GDP at which Italy would likely default on its obligations?
- If it comes to such a default, how will we recognise it? I.e., what event/non-event would be an indicator of it happening and what are the timepoints to watch? (I guess scheduled moments of interest installments, or something like that could be such moments)
- What options would the Bank of Italy have at that point to mitigate the crisis?
- What options would Italian government have at that point to mitigate the crisis?
- What options would European Central Bank have at that point to mitigate the crisis?
- What options would European Commission and European Council have at that point to mitigate the crisis?
- If despite all the doom and gloom Italy's default is unlikely (because for instance the existing policies might as well work, or such), what are exactly the policies/mechanisms/events which would prevent the country to default?
- My background is not in economy, so in the case I posed my question with flaws, I would appreciate help to improve it.
- To put a break on speculation, let's assume that Italy leaving EU, or a scenario like that is out of question (barring sub-question 6).
- Just to stress: I very well understand this site is not for speculative questions, but since my question is about a possible future scenario (which clearly many serious economists consider realistic and likely), it is by necessity somewhat speculative. Therefore I am asking about current legal/political framework and reality to be considered/executed at some future time point. That is, I am asking about viable options, not some fantastic scenarios.