If the financial markets are to calm down, Italy will need to adopt tough austerity measures, which in turn would probably make the ECB step up significantly its purchases of Italian government bonds.
Prime Minister Silvio Berlusconi is expected to step down. He may be succeeded by Mario Monti, who the markets would welcome.
Third-quarter GDP data will show how hard economic growth in the eurozone has been hit already, though we do not expect to see the largest effect until Q4.
US indictors will probably show a slowdown in retail sales and a continued downturn in housing construction.
Global Update
While Europe is still suffering due to the debt crisis, the outlook is slightly brighter for the US – and the Chinese economy continues to look strong, supported by a sharp fall in inflation.
Italy was dealt a serious blow in the past week, as government bond yields spiked above 7.5%.
The eurozone crisis is also feeding through to the Scandinavian economies, supporting arguments for a rate cut in Sweden but probably not in Norway.
