The definition of insanity is repeating the same behavior and expecting a different result. Speaking of which, concerns about Europe's debt spurred a global selloff Monday morning after S&P cut Italy's debt rating to negative and Spain's ruling Socialist Party suffered heavy losses in regional elections.

Overnight, China's Shanghai Index fell 2.9% and Japan's Nikkei shed 1.52%, kick-starting a global selloff. In recent trading, major European bourses were down between 1.7% and 2.1% while the Dow was down more-than 1%.

The acute issue in Europe right now is Greece, where a debt restructuring (aka default) seems inevitable. Last week, EU officials agreed to a $110 billion bailout package for Portugal. Backed by the IMF, the package looks strikingly similar to the deal engineered for Greece about a year ago — and we all know how well that worked out! Over the weekend, Fitch cut Greece's debt rating by three notches and Luxembourg Prime Minister Jean-Claude Juncker said Greece should privatize state assets, similar to the model Germany used to sell of East German assets after reunification.

While painful, debt defaults by Greece and Portugal would likely be manageable. But Spain and Italy are orders of magnitude larger and pose the kind of systemic threat to the financial system that have always lurked in the background of Europe's debt crisis.

As of Aug. 2010, the top 91 European banks had approximately $140 billion of exposure to Italian sovereign debt and around $30 billion of exposure to Spanish debt, according to The FT.

Given the ECB's hawkish stance and the failure, to date, of austerity measures to revive economic growth in the Eurozone — much less confidence in sovereign debts — it's little wonder investors are looking beyond the horizon and seeing nothing but trouble.

SNL Tackles Sovereign Debt

As an aside, but on a related note, much has been made about Saturday Night Live's hilarious opening skit about Dominique Strauss-Kahn and the European debt crisis. Less noticed, because most people had gone to sleep or changed channels, was the show's final segment, where America's looming debt crisis provided the fodder.

For the moment, problems abroad are working to the benefit of the U.S. dollar and Treasuries, which were rallying Monday morning (along with gold) amid the flight from "risk" assets. But at some point in the not-so-distant future the financial markets will turn their focus from Europe to the U.S. Hopefully we'll learn from Europe's mistakes and use the current reprieve to change course.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com