Simon Johnson, who has made a career of studying and intervening in countries that have sovereign debt crises, has a very blunt post today, “Europe Risks Another Global Depression.” Notice the full stop; there is no passive aggressive question mark at the end to give him any wiggle room should it all blow over. Considering his expertise about identifying when countries have gone past the event horizon, that is quite worrying.

Things could get real ugly real fast, with the financial markets demanding some sort of intervention immediately.

Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a Lehman-style tsunami spreading across much of the EU.”

According to Johnson, the powers that be don’t seem to understand this. Or maybe they do, but they refuse to believe the inevitable logic of the situation: the Eurozone is a failure. Critics of the Euro have long predicted that it wouldn’t be able to hold together when faced with difficulty, because it would be impossible to have monetary policy for the whole that would be beneficial to the parts. This is exactly what happened, with Germany dictating the policy to its greatest advantage, leaving countries such as Greece and Spain out to dry. This critique has now been blessed with the Common Wisdom tag, as bestowed by Paul Krugman. While Krugman bends over backwards to absolve government spending of any blame, he is absolutely correct that it isn’t the primary contributor to the problem.

Things are quite a mess.

Update: Yves Smith has a post up and refers to the possibility of a “Global Margin Call.” This is precisely why I referred to the problem as a “financial catastrophe” as Europe is still way too leveraged and a disorderly drop in debt markets — even for relatively small countries — will have vast implications when it comes to total exposure.