Germany could be Europe's next big problem
This is as good as it gets for Germany and Europe.
Previously, it was the debt of the eurozone's peripheral countries that was of concern to the markets.
And at the heart of the looming issue for Germany and Europe is the Italian banking system.
"[Problems in Italian banks are] going to spill over into the Netherlands, it's going to spill over into Germany," Friedman said. "Germany is the new PIIG. Germany depends on exports and its markets are drying up."
The PIIGS economies — Portugal, Italy, Ireland, Greece, and Spain — were the main concerns during the European debt crisis of 2011 and 2012. And with those crises seemingly having passed and Europe moving back towards a path to economic stability, Germany has been a big winner with its economy as strong as its been since re-unification and an unemployment rate down to 4.5%.
Germany has, however, been running a structural trade surplus underpinned by a weak euro with its trade surplus hitting a record $23.9 billion in June. And Friedman thinks Germany's export well is about to run dry.
Data released in late-2015 showed non-performing loans at Italian banks totaled €300 billion, 17.3% of outstanding loans.
That is a massive number considering the average for the euro zone is 6.8%, and Germany's NPL's are at just 2.3%.
According to Friedman, this is a big deal because Italy is the 4th largest economy in Europe and the 8th largest economy in the world. Italy's home to the largest banking system in Eastern Europe and there's a lot of inter-connectivity in play.
For example, Germany's largest bank, Deutsche Bank, has an enormous amount of exposure to Italy, and so does the rest of Europe. Ultimately Friedman thinks it will be Germany that has to save Italy.
And that will cost a lot of money.
"It's not the PIIGS one should worry about," Friedman said. "Germany hasn’t even begun falling yet. And when Germany falls, and it will, that’s when the panic begins to set in."