Today's news from Italy went from bad to worse, leading to a 7.7% drop in C-I Financial Sector stocks;  the broad-based U.S. stock markets fell 3%-4%.  European financial stocks - Deutsche Bank, Barclays, Credit Suisse - took the biggest hits, with each losing over 10% of their market value. What Happened in Italy, Today? For starters, borrowing costs reached breaking point on Wednesday after Prime Minister Silvio Berlusconi insisted on elections instead of an interim government.  This means we should not expect economic reforms any time soon, but we can expect prolonged instability. Italian 10-year bond yields shot above the 7%  - a level that's widely deemed unsustainable.  Yet, it reflects the reality that investors are concerned they may not get their money back.  This, in turn, prompted German Chancellor Angela Merkel to sound the alarms - saying Europe's plight was now so "unpleasant'' that deep structural reforms were needed quickly. She called for changes in EU treaties after French President Nicolas Sarkozy advocated a 2-speed Europe in which euro zone countries accelerate and deepen integration while an expanding group outside the currency bloc stayed more loosely connected - a signal that some members may have to quit the euro if the entire structure is not to crumble. 'Breakthrough to a New Europe'. "It is time for a breakthrough to a new Europe,'' Merkel said. "A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can't survive.'' Needless to say this is a drastic suggestion - changing the make-up of the euro zone - one that probably cannot move forward without significant operational and technical discussions - which currently has not been planned.  Another problem is that such "draconian" steps are opposed by many EU countries, whose backing would be needed for any adjustments to the bloc's treaties, making them anything but a done deal. C-I welcomes its members to continue reading - with the understanding that, for all we know, all this may be moot by tomorrow.   [Reuters, 11/9/11 - appearing on cnbc.com]