What will happen when Italy 'restructures'.

All the investors who bought Italian bonds will want their money so they will turn to the insurance policies they bought to protect them against this very event.  Those insurance policies are called 'derivatives'.  Another name is 'credit default swaps' or CDS.

Why does anyone care if a bunch of Eyetalian banks go tits-up?  Almost every CDS was written and sold by an American company back in the halcyon days when the government was guaranteeing them against loss.  They made billions selling them.  But they didn't stop at what they could afford.  Why should they?  So, as I have previously mentioned, there is about a QUADRILLION dollars in loan guarantees floating around.  No one knows.  It was all OTC and not reportable.  But a pretty good estimate is that JPMorgan/Chase alone has about 90 TRILLION dollars of exposure to any European loss.  They don't have it.  The US government doesn't have it.  No one has it.  Everyone who paid a billion dollars to insure a trillion dollars will lose all of it.  A lot of those investors are central banks.  Some are filthy rich people who bought into a private hedge.  Some are derivative-based funds whose investors include millions of smaller investors - like retirement funds - who bought in for a high return insured against loss.

If one bank failed, they might get away.  If Italy restructures, none of those CDS will pay up.