How austere is austere enough?

The Berlusconi government has already passed an austerity and reform package designed to balance Italy's budget by 2013. But that plan, European Union inspectors have said recently, isn't sufficient to get to balance by 2013 because economic growth in Italy (and in all of Europe) has slowed and is slowing further. Hence the need for a new austerity package, the one that hadn't been delivered to the Italian Senate as of Wednesday afternoon. (It was finally delivered on Wednesday evening.)

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The size of that new austerity package? Just 45.5 billion euros -- about $63 billion.

This crisis is about $63 billion?

No way. Italy is a relatively rich country. It could come up with that kind of money. In fact, Italy's private wealth of 10 trillion euros is five times the country's public debt of 2 trillion euros. Italy isn't bust. Far from it.

But that private wealth is irrelevant if Italian politicians don't have the will to tap it. Or the will to get the country's bloated public sector under control. Of the will to reform Italy's pension system. Or to . . . . (Do you see parallels to the financial situation in the United States? Of course not.)

That lack of will is what the markets fear -- and what has created a panic that threatens Italy's access to the financial markets.

Italian IOUs are no good here

The markets essentially said on Wednesday that they aren't going to lend Italy any more money, except at ruinously high interest rates, until it gets its political act together. And that's a big deal, because Italy needs to refinance about 300 billion euros (a little over $400 billion) in 2013. Doing it at 7.5% interest would blow out the government budget and require yet more austerity to get it back into balance.

But Italian politicians were not the only ones that the market judged and found wanting on Wednesday. German officials such as Finance Minister Wolfgang Schäuble have responded to the crisis by saying that Italy should go to the European Financial Stability Fund for rescue.

The market knows that's nonsense.

Italy needs about 260 billion euros to get it through the next six months if it is locked out of the financial markets by high interest rates. The European Financial Stability Fund has only 250 billion euros left of its original 440 billion -- and of that, 139 billion euros belong to Italy. Subtract what Italy can't borrow from itself, and that 250 billion balance drops to about 110 billion euros.

Could the European Union fix this problem by increasing the firepower of the facility? Sure, but the markets are saying that German politicians will refuse to pony up cash and that plans to leverage the fund will take too long to put into action.

By the way, the International Monetary Fund, the other source of cash that European politicians are so fond of waving around these days, doesn't have the money either. The IMF has only 300 billion euros on hand. Supporting Italy for six months would pretty much clean out the fund.

That leaves the European Central Bank. But here the markets are saying that while the ECB has the necessary power -- it can effectively print all the money it might need -- it won't use much of it because of the politics of the bank.

It was reportedly buying some Italian bonds on Thursday. But Finland, the Netherlands and, most vocally, Germany have publicly stated that they think the bank's job is assuring price stability (that is, fighting inflation) and not acting as the lender of last resort in this crisis. The bank, the markets believe, won't throw aside its roots in the inflation-fighting Bundesbank and become a European Federal Reserve.