Italian bond yields yesterday jumped to 7.3 per cent, past the seven per cent danger level beyond which the repayment of the debt becomes impossible. The euro and European stocks fell. Curiously US stocks ended slightly higher, perhaps in a flight to a safe haven however shaky its foundations.

Warren Buffett said he had looked at the eurozone banking sector but found nothing worth buying. It is a pretty damning verdict from the man who stepped in to save Goldman Sachs at the height of the global financial crisis in 2008.

Future outlook

Perhaps he smells the whiff of nationalization hanging over the eurozone banks, something that would put the wind up any serious long-term investor. Or could it be that things are just going to take a long time to put right?

One thing is for certain, the crisis is not over by a long-shot. Economists at the top eurozone banks are increasingly apocalyptic warning of a blow-up very soon.

The Oracle of Omaha said the eurozone banking system was experiencing a ‘partial run’ on the banks. In other words depositors are taking their money out.

It makes sense. The euro is falling in value. It is $1.34 this morning and $1.25 is a target for the middle of next year at some major banks. So you are going to lose on the forex if you stay in the euro, quite apart from whatever damage is now forthcoming in financial markets.

Will that rebalancing of global money flows be enough to support the US financial markets and for the moment the UK? Well the level of interest rates in these two diverse economies says yes for the timebeing.

UK debts

However, it will not be a surprise to readers of this column to be reminded that the UK actually has the highest debts of any nation in the world (click here) and the US debt position is almost as precarious. So what is happening in Europe is much more likely a precursor for what must happen in these countries than a ticket out of jail.

Indeed, the contagion from one financial market can be reversed very quickly from a positive cash flow to a very negative scenario. In 1931 it was the fall-out from the collapse of the Austrian bank Credit Anstalt that triggered the insolvency of the US banks that created the Great Depression.

Then as now the US banks were supposed to be recapitalized and insulated from this contagion. But then only a week before the collapse of Dexia recently this large bank passed the eurozone stress tests close to the top of the list. Reason enough to be cautious!