If bonds are supposedly safer since the returns are known, and the odds of a country going bankrupt is not as great as that of a corporation, then what is going on in Europe?

Greece has been over-spending, and with bonds due soon they realize that they are unable to pay them back.  Infused in urgency, the Prime Minister made the mistake of calling a referendum after successful negotiations to lower return rate of bonds with other countries.  This led to an immediate huge drop in the stock market.

Italy, with five times the debt of Greece, rushes to sell bonds in order to get an influx of cash to pay back past bonds.  However, the inevitable increase in bond rate to attract higher-risk takers only makes it harder.  This vicious cycle continues and the level of difficulty to sell the bond will only accelerate.

Debt crisis, an everyday term today, was unheard of before – that a whole entire country’s financial system would fail, and Europe too.  As news stories compile, I am not optimistic about the situation.  Does anyone actually know what to do?

With no solution in view, what does this mean for the countries involved and the Euro?

Reference:
–LA Times: Stocks tumble worldwide on fears of Eurozone blow-up
–The New York Times: Italy and Greece act with more force on the debt crisis