The Mediterranean (and European) soap opera took center stage these past couple weeks.

In Greece, Prime Minister George A. Papandreou was replaced by Lucas Papademos, former European Central Bank vice president. In Italy, Prime Minister Silvio Berlusconi was replaced by Mario Monti, an economics professor. In both countries, the new prime ministers are trying to win over coalitions and form effective governments to bring about economic reform and debt reduction.

Greece’s problems stem from heavy borrowing, excess spending, and widespread tax evasion. The situation became serious enough that it was offered a Eurozone rescue package, with austerity strings attached. After much effort getting the deal approved by the EU countries, Papandreou put the package in jeopardy by calling for a referendum on it in Greece. That slap in the face opened the possibility that Greece would not get emergency monies and might be kicked out of the Eurozone.

Italy’s problems stem from a high debt load, minimal economic growth, and lack of competitiveness. “Berlusconi was forced to resign when the yield on Italian bonds rose to more than 7% last week, the rate at which Greece, Ireland, and Portugal were obliged to seek bailouts from the EU,” the BBC reported.

On Friday, North American markets were up on hopes that the change in leadership in Greece and in Italy might actually bring some resolution of debt problems in both countries. The reality of how difficult that will be sunk in over the weekend. Concerns about the fate of the European Union and the euro remain, and the spill-over is dampening recovery efforts in the United States.

The United States, of course, has its own, ongoing political and economic soap opera, which is about to make headlines again as the U.S. Congress Joint Committee on Deficit Reduction (the “Super Committee”) nears its November 23 deadline to recommend at least USD 1.2 trillion in deficit reduction steps. Those steps likely would include additional budget cuts, and could include tax increases (or revisions to tax codes that could increase revenues).