Financial markets have shown no sign of calming down following Italian Prime Minister Silvio Berlusconi’s announcement on Tuesday that he would resign once a series of austerity measures are passed by the Italian parliament. The big risk for Italy – and for the world financial system — is that it falls “over the cliff” before efforts to right the ship can be worked out, experts at Wharton say. In this special report, Knowledge at Wharton offers insights on the latest developments in Italy, the reasons why the European debt crisis has become so acute, and what it would take to bring about a possible recovery.

Italy (and the Global Economy): An End to La Dolce Vita?
Can Europe’s politicians find a way out of a debt disaster and avoid another global financial meltdown before markets overrun them? Fears are growing that they cannot.

The Euro Zone of Denial Hits the Wall
The eurozone’s efforts to fence in Greece’s debt problems have consistently lagged events. The recent summit addressed many key issues, but skeptics say potential pitfalls still lie ahead. The agreement also falls short of confronting longer-term root issues — underlying trade imbalances and an ultimate “backstop” role for the European Central Bank, some critics argue. And now Italy’s financial crisis is beginning to worsen, despite Prime Minister Silvio Berlusconi’s pledge to resign. Another big worry: Creditors could lose all confidence in Europe’s ability to fix these problems, leading to a collapse in Europe’s banking system and other parts of the global economy. To help understand the big picture, Knowledge at Wharton spoke with Wharton finance professor Franklin Allen and Wharton management professor Mauro Guillen about causes and cures, barriers to long-term solutions and the cultural differences that always lie under the surface.

Will the U.S. and Europe Rise Again — or Sink Together?
In today’s highly interconnected global economy, problems in one country often lead to difficulties in another. The United States and Europe are experiencing that reality up close as leaders try to deal with debt problems, investment-shy business sectors and seemingly intractable unemployment. At a recent presentation attended by Wharton board members, professors Franklin Allen, Richard Marston and Kent Smetters warned that a true recovery for either region will take time, and that conditions could get worse before they get better.