Stocks plunge: four factors behind investor pessimism

3. European debt crisis worsens as Italy enters into emergency discussions

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    Italy's Prime Minister Silvio Berlusconi reacts during a news conference at Chigi Palace in Rome Aug. 4, 2011. Mr. Berlusconi met unions and employers Thursday after a speech to parliament aimed at quelling fears that escalating market turmoil could drag Italy into a full-scale debt crisis.
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While attention has been riveted on the goings-on in Washington, the debt crisis in Europe has taken a new turn. This week it was revealed that Italy has entered into emergency talks with eurozone officials as it becomes more likely that Italy is at risk of defaulting. As the third largest of the eurozone countries, Italy is simply too big for the eurozone to provide the funding necessary to meet the nation’s obligations. If Italy is unable to raise sufficient funds through the bond market, a default is all but guaranteed. A default would call into question the future of the eurozone itself, causing more uncertainty for the markets.

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