A man looks at a board outside Milan's stock exchange on July 11, 2011.
A man looks at a board outside Milan's stock exchange on July 11, 2011. - 
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Kai Ryssdal: We've got meetings. Talking. Politickin'. But progress, no, not so much of that in the debt limit talks going on in Washington today.

So we'll turn instead to the news from Italy, which could be worse than anybody'd thought a couple of days ago -- the prospect that the eighth biggest economy on the planet might follow Portugal, Ireland and Greece into the bailout zone.

Marketplace's Stephen Beard reports from the European Desk in London.

Stephen Beard: American banks have a large exposure to Italian government debt. They hold or have guaranteed some $270 billion worth of bonds. But that's peanuts compared to the possible damage to the U.S. if Italy defaults.

Moises Naim is an economist with the Carnegie Endowment in Washington.

Moises Naim: A crash in Italy will send shockwaves around the world that will inevitably touch the United States through trade, through finance and through growth in a variety of ways.

First it would trigger a European banking crisis, which would swiftly infect the global financial system. "Lehman Brothers to the power of 10" is how some analysts put it. What makes this prospect alarmingly real, says economist Adolfo Laurenti, is that unlike Portugal, Ireland or Greece, Italy seems too big to save.

Adolfo Laurenti: There is no backstopping, there is no bailout. There is just nobody that can really step in if something goes wrong in Italy.

But there is hope. The Italian crisis was sparked last week by a domestic political spat between Prime Minister Berlusconi and his finance chief over planned austerity measures. The two -- under pressure -- may now settle their differences. And that may explain the slightly steadier mood in Italian markets at the end of today's trading.

It may not last.

In London, I'm Stephen Beard for Marketplace.