Much of the investor complacency toward the threat from Italy's debt crisis is the fallacy that worse scenarios have been survived elsewhere before.
Let's be clear: no country in history that doesn't control its own currency has ever had such a large debt pile. This situation is unprecedented.
It's also the debt-to- GDP ratio that makes it particularly dangerous. Some analysts have pointed to the fact that France has been running much larger budget deficits for years, but France is a far larger economy with a smaller debt burden. Its debt/GDP ratio is just below 100%; the equivalent metric for Italy is over 130%.
This isn't to argue that disaster is inevitable. If Italy and the EU convey some sense of coordinated belief that Italy's debt burden will ease in the years ahead, investors will then be inclined to give the country the benefit of the doubt, especially given the yields on offer.