Market jitters over Italian insolvency are more than just another soft European economy being added to the ever-growing list of debt anchors pulling the Euro Zone into the abyss. They’re reflective of a new stage of the Euro Financial Crisis– one that requires decisive leadership if the common currency is to survive.

In Italy we are now seeing a sovereign debt crunch that is ‘same-same but different,’ to borrow the local parlance of South East Asia. There certainly are some similarities to Greece, Ireland, and Portugal: high levels of sovereign debt (120% of its GDP), predatory bond speculation leading to rapidly spiking borrowing rates, and headaches in Paris and Berlin as politicians try to keep the contagion from spreading to healthy European economies. More important however are the differences: the relative health of the Italian economy vis-à-vis Greece, the swift and decisive legislative steps taken by the Italian government to shore up investor confidence, and finally the cumulative weight of yet another European economy being pulled under and looking to the byzantine bureaucracy in Brussels as well as a bailout-exhausted Berlin for help.

Keep in mind that this all comes before any agreement has been reached on a second bailout package to ward off a Greek default. European leaders are still deadlocked in a series of emergency meetings over the kind of lifeline that will be thrown to Athens. According to sources within the negotiations, the point of contention is Chancellor Merkel’s insistence that the private sector take on some of the burden in the form of a write-down of Greek debt.

That one fire breaks out before the last one is extinguished would not be insurmountable if not for two things. First, there is a distinct and corrosive lack of leadership within the EU bureaucratic apparatus. Responding in a decisive manner has never been Brussels’ strong point, and time and investor perceptions are critical if the sovereign debt crisis is to be contained. Secondly, the conventional engines of EU decision-making, Berlin and Paris, are both suffering from a cumulative malaise resulting from constant bailouts of weaker European economies. In the case of Chancellor Angela Merkel in particular, it remains to be seen how long she can push through politically unpopular bailouts at the expense of her own domestic political fortunes in Germany.

When Italy’s cost of borrowing gets high enough to invoke the spectre of default, the Euro Financial Crisis will have entered a new and critical stage.  The European Union’s institutional deficiencies will have been laid bare, leading to the inevitable consensus that the ad hoc bailing out of ‘misbehaving’ Eurozone members simply isn’t enough to insulate the currency from economic disaster. Having reached this point, Europe will need to ask itself a critical question: Is it time to drop the entire project, or should the EU head towards the type of fiscal union that is necessary for the currency to survive?

Thus the EU is at a critical juncture in determining the future of Europe. Will governments agree that expensive welfare policies should be relegated to the twentieth century in search of public solvency, as Niall Ferguson argues? Will the crucial step of issuing a Euro Bond be taken, crossing the deeply symbolic threshold of linking the economic destiny of strong EU economies with weak ones? Or, will the Euro zone simply be pulled apart by a leadership deficit and entropic nationalism? As the Euro Financial Crisis drags on without any end in sight, each of these once far-fetched outcomes are beginning to seem likely.