Europe now is the canary in the economic mine and the outlook is dire. Check out today’s headlines:

European debt crisis: Risks grow as borrowing rates for Italy, other nations rise


Banks Build Contingency for Breakup of the Euro


OECD figures suggest Britain’s economy will slip back into recession at the start of next year

The gritty, unyielding reality is that Europe aka the EURO will not extricate itself from this bog of despair. The breakup of the economic union in Europe will worsen an already wobbly global economy. Merry Christmas.

The borrowing rates for troubled — and even not-so-troubled — European governments soared again Friday, heightening the danger of an all-out collapse in Europe’s common currency. It comes as political leaders across the continent are pointing at each other as they call for action to avert a worse outcome.

The danger is most pressing in Italy, where the rate the nation must pay to borrow money for a decade rose Friday for the fifth straight day, to 7.23 percent from 6.64 percent a week ago. The increase came in an auction of new bonds for which demand was weak — pushing the rate the Italian government must pay to borrow money for two years up four-tenths of a percentage point, a remarkably big one-day jump, to 7.5 percent.

With debt totaling 120 percent of Italy’s economy, higher rates could create a dangerous, self-reinforcing spiral for the country — the higher its borrowing costs, the more onerous the interest payments. That in turn increases the likelihood of economy-cratering tax increases and spending cuts or a catastrophic default.

Over recent days, the sense of impending threat has even spread to nations that have generally sound finances. Standard & Poor’s cut its long-term credit rating for Belgium to AA on Friday from AA+, expressing concern that the nation may have to engage in costly bank bailouts that will strain its finances.

How’s that for a choice? Deflation or default? Neither a palatable option. But reality will intrude. It is not a matter of if, but when.

How do I know? The rise in the cost of borrowing is spreading with no end in sight. That’s why banks are preparing for the worst:

But some banks are no longer so sure, especially as the sovereign debt crisis threatened to ensnare Germany itself this week, when investors began to question the nation’s stature as Europe’s main pillar of stability.

On Friday, Standard & Poor’s downgraded Belgium’s credit standing to AA from AA+, saying it might not be able to cut its towering debt load any time soon. Ratings agencies this week cautioned that France could lose its AAA rating if the crisis grew. On Thursday, agencies lowered the ratings of Portugal and Hungary to junk.

While European leaders still say there is no need to draw up a Plan B, some of the world’s biggest banks, and their supervisors, are doing just that.

“We cannot be, and are not, complacent on this front,” Andrew Bailey, a regulator at Britain’s Financial Services Authority, said this week. “We must not ignore the prospect of a disorderly departure of some countries from the euro zone,” he said.

Banks including Merrill Lynch, Barclays Capital and Nomura issued a cascade of reports this week examining the likelihood of a breakup of the euro zone. “The euro zone financial crisis has entered a far more dangerous phase,” analysts at Nomura wrote on Friday. Unless the European Central Bank steps in to help where politicians have failed, “a euro breakup now appears probable rather than possible,” the bank said.

The impending death of the EURO, if realized, will be akin to a 500 lb bomb detonating in a mall. There will be enormous collateral damage and many innocents will be killed or maimed in the ensuring economic mayhem.

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Larry C. Johnson is a former analyst at the U.S. Central Intelligence Agency, who moved subsequently in 1989 to the U.S. Department of State, where he served four years as the deputy director for transportation security, antiterrorism assistance training, and special operations in the State Department's Office of Counterterrorism. He left government service in October 1993 and set up a consulting business. He currently is the co-owner and CEO of BERG Associates, LLC (Business Exposure Reduction Group) and is an expert in the fields of terrorism, aviation security, and crisis and risk management, and money laundering investigations. Johnson is the founder and main author of No Quarter, a weblog that addresses issues of terrorism and intelligence and politics. NoQuarterUSA was nominated as Best Political Blog of 2008.