So much has been written about the debt crisis in Europe that it can send your head into a confusing spin. The easiest thing is to just tune out.

But don’t. Europe is on the brink of tearing itself apart and the ripple effect around the world, and on your life, could be significant.

After spending last week in Italy, Greece and Germany you get a very real sense of how serious it is. A dismantling of the European Union could send the region in to a serious recession.

For Australians a serious European recession could see prices for our commodities fall, spark a global banking crisis which pushes up interest rates and makes credit harder to get, causes sharemarkets to fall which impacts our superannuation returns and hits consumer and business confidence.

To get an understanding of how this could have happened to Europe, Italy and Greece are great case studies. They’ve been brought to their knees by widespread tax evasion,  rampant corruption and a lack of competition.

Here’s a simple guide to what’s happening in Italy and Greece.

This Is Greece

. Economy contracted 5.2 per cent in last year

. Government debt is 145 per cent of GDP (Italy is 115%, Ireland 95%)

. Unemployment 18.75 per cent but closer to 25 per cent because E115/wk benefits stop after a year

. Budget deficit of 15.4 per cent of GDP, well above Euro zone limit of 3 per cent

. Public service employs 20 per cent of the population

What Has Dragged Greece Down?

. Tax evasion amounts to E22b a year or 10 per cent of GDP

. Corruption is worth E20b a year or 8 per cent of GDP

. Black economy accounts for 25 per cent of GDP

. Protected industries so no competition. For example, there hasn’t been a new trucking license issued since 1970

. Big interest bill on Government debt is killing the economy

How Are They Fixing it?

. Social security payments will be cut by E5b over four years

. Public service wages cut by 20 per cent

. Pensions above E1000/mth cut by 20 per cent

. Retirement age raised to 65. It’s currently 50 for public servants

. Deregulate industry to promote competition

But the key is convincing Greeks to pay their fair share of tax. Would you believe 900,000 Greek people or businesses owe E41.1b in back taxes and 14,700 of them owe E3.7b or an average E150,000 each.

They have a tax on swimming pools in Greece and in one of the rich Athens suburbs only 324 households admitted to having a pool and paying the tax. So the Finance Ministry sent up a helicopter and photographed 16,974 pools in that area.

It’s an extraordinary story but just sums up the problems with Greece. Would you believe one of the hottest items for sale in Athens are camouflage pool covers.

A good reflection of how nervous Greeks are about the future of the country is 9000 people sent E4.9b overseas last year. But 5000 of those people declared a taxable income of under E20,000 a year.

That is the problem with Greece.

This Is Italy

. 8^th largest economy in world and 4^th largest economy in Europe

. Government debt of $2.6 trillion which is 120 per cent of GDP

. French banks have $400 billion exposure to Italian bonds while German banks have $150b

. European Stability Fund to save debt ridden countries is $1.3 trillion which is not enough to save Italy.

. Nightmare to do business. Italy is ranked 87th in an “ease of doing business index” which puts it behind the Sudan.

. Lot of corruption. It’s ranked 67th in the Corruption Perception Index behind Rwanda and several other African countries.

. Economy not growing. Over last 10 years economic growth has gone backwards. Italy’s economic growth over the last 10 years is ranked 179th in world behind Zimbabwe.

Italian Austerity Measures

. Public servant wage freeze until 2014 and pubic service headcount slashed. For every 5 people who leave they’ll only be replaced by one

. Freezing aged pension and making it tougher to get.

. Increase health care fees and cut family tax benefits

. Increase VAT from 20-21%

. Tax surcharge on high income earners

. Limit cash transactions to under E2,500

. Crackdown on black economy and tax evasion

. Cut Government red tape

. Deregulation of labour laws

. Privatise government enterprises

What Will Save Italy

. Government debt high but private debt low

. Makes a budget surplus before interest. The interest on Government debt is the killer

. Has a strong industrial base

. Italians are good savers