The Great Recession is heading into its second phase. This was predicted back when the first phase began in both the US and Europe. Governments and their distortions of real estate and associated finance caused the first phase. Governments and their addiction to socialism will cause the second phase. In particular the locus of the next crisis will of course reside in Europe, but it shall spread. Spain, Italy, and even France are at risk of fiscal implosion. This will devalue the Euro on a path to zeuro, cause a bank run, and destabilized international banks and markets. This will lead to more government distortion and involvement, worsening the situation and leading to further economic contraction in the major economies.

The reason why the Euro crisis will damage the world economy, is that the ECB will be bankrupted and will have to be capitalized. When Greece exits the Euro, it will cost the ECB about $1 Trillion. This will be due to the hundreds of billions of loans that French and German banks will not collect as Greece defaults, and the ripple effect that this will have on the bond and capital markets in Spain and Italy. The Spanish bank-state fiscal imbalance is about $500 billion. Most likely Italy has the same scale of insolvency. There is simply not enough money that one can print or tax to pay the Trillions needed to 'save Europe'.

When Greece goes, the Euro will rapidly decline and focus will turn to the under-capitalized and at risk Franco-German banking system. Spain and Italy will come under further scrutiny, and their real debts [not the stated government debt] will be a major concern. The $1 Trillion in ECB grants and supports, already committed by member states will have to double. This will prompt another Continental-wide financial crisis. The IMF will be 'forced' to try and steal [at gunpoint], money from OECD member states to finance a Euro bailout. They won't get a dollar from these states. No one is fool enough to bail out Europe – soft power and rhetoric, along with unfettered socialism must have its consequences.

Zeuro-zone politicians will of course not cut spending [austerity does not exist it is a propaganda myth], and will demand that the ECB simply print pretty pieces of paper [which some call money]; give it to their national banks [national 'champions']; who will then recycle it back to state governments [to fund the EU-topia]. Or the ECB, in contravention of the Maastricht Treaty, might feel inclined to offer a direct bailout to states who will then, 'save' their banks with devalued currency. Neither policy will work.

At some future we will likely see the implosion of the ECB. Not even the Euro-crats believe that they can manufacture coloured papyrus and declare it to be worth something, while maintaining with a straight face that there will never be any future inflation worthy of the name [things are different; things have changed; this is not 1921 etc. etc]. When Greece goes it will become apparent that the ECB is under-capitalized. But what can be done? Quite likely a plurality of the population at large also realize that you can't print money forever, or steal assets [taxation] without repercussions. Europe has been a no-growth empire for 20 years. They can't tax their way into prosperity, and they certainly won't cut spending. Printing money will soon not be an option. The ECB is and will remain under-funded. It will probably cease to exist in its current form. Welcome to phase 2 of statism and its consequences.