The latest act in the debt drama unfolding in Europe right now can only be described as operatic. Italian bond yields have risen to euro era highs, markets around the world are roiled (US equities suffered their worst one day drop in three months yesterday), and the infamous Silvio Berlusconi has agreed—finally—to step down as prime minister of Italy. The question is where it all leads to now. If Italy defaults, which a lot of experts say is quite likely, it would be, as PIMCO CEO Mohamed El-Erian has told me, “A bigger event than Lehman Brothers.” As usual, European leaders are struggling unsuccessfully to stem the tide. For a look at how Berlusconi created the world’s most dangerous economy, and what might happen to world markets now, check out this story in the latest edition of Time.