OK... so let's say it's 100% that Greece will default in some way and 100% that Italy will default in some way.

Let's say that the result of these defaults will result in a Lehman Brother's style catastrophe 50% of the time, and something 10 times worse 50% of the time.

Let's say this happens in 6 months.

How do you play it?

lol too funny on multiple fronts

if u think something 10x worse than lehman is 50% likely, u can short anything and everything.

if u think italy defaults - u can short the EWI.

if u think greece defaults, ur out of luck bc ppl knew this months ago.

i have not and will not short the euro - its a suckers play.

im sure we will end up in worse shape becase we will try and save the world as usual...they weill be ok and we will be jacked up....whats new

Yeah, no short on euro, currency trading is dumb if you're not an institution, there are much better plays for an individual. Yeah, ok, I think Italy defaults. I guess what I'm wondering is what does that look like for the rest of the world?

so as i see it, greece has already defaulted on 50% of their private debt and their bonds are trading at 25-30% value (rightfully so i guess). italy, maybe buy cds, if that is possible. if not short the banks, all euro banks should be bancrupt in your scenario. regarding italy, a default would probably look quite different imo, they would probably cease repayments for a while and change short term bonds into longer term bonds as they probably could repay those when interest rates are low enough. i think the current valuation of italian bonds can only make sense if you assume that they will leave the eurozone with a very high probability and will then make their payments in devalued lira (30-50% discount).
if italy decides to leave the eurozone and revalue all debts to lira (which is the only reasonable option then), the lenders of italian public and private sector will be hit pretty massively at first, especially french banks.
i think these trades would be bad as these assets are already trading at fire sale prices because banks are forced to deleverage as a result of regulation. generally doing the opposite of what commercial banks have done has been a good bet for the last 20 years.

Given Berlusconi's resignation, I think it's likely that we'll see a collapsing Italy in the next few months - he saw the signs and quit. (Yes, his sex scandals and corruption charges etc. all hurt as well, but I honestly think he saw the mess coming and bailed.)

greece already has defaulted.

shorting bunds is the play, the banks will get recapped on the taxpayers

You are thinking in terms of investment? From the individual European point of view, what do you think about diversifying currencies?

Greece has not defaulted yet, it's a voluntary restructuring so far. This means that you should be able to simply buy the bonds, and not participate in the restructuring.

in theory, in practice if you have a bank in Greece your hands are tied (and they are the biggest owners of greek debt)

this is just a show to look like they are doing something. In reality this is a big joke http://www.dw-world.de/dw/article/0,,15508757,00.html

hope you got on

buy CDS... o wait they don't work

doesnt shorting Italy effectively mean shorting Eurozone?

Explain....