Europe requires structural labor market reform and must resolve its sovereign debt overhang, banking crises, and the euro s future.

Moreover, the debt overhang remains massive.

Nor has the debt overhang been removed.

Once too many houses have been built, the existing overhang depresses the market for a very long time, and unemployed construction workers are usually unable to find jobs elsewhere.

But Germany had no debt overhang to confront.

Here are some ways to reduce the overhang.

Forgiveness of underwater mortgages (where the outstanding loan exceeds the home s current market value), as well as reducing the foreclosure overhang of some 1.5 million homes, must be part of that solution.

It is an even less direct way to address the private, related debt overhang.

They need to know how the existing debt overhang will be dealt with today.

Without Ecuador s gimmicks, buybacks do not seem to be the solution to Greece s debt overhang.

Worse still, in the medium turn the monetary overhang may lead to significant inflationary risks.

It will take years to overcome the excessive indebtedness and real estate overhang that resulted.

Thus, a debt overhang cumulatively costs more in lost income than a deep recession does.

The bigger issue is the debt overhang that has forced European governments to pursue this course.

When those bubbles burst, consumers were left with a massive overhang of excess debt and subpar saving.

There is a simple way to deal with a debt overhang reduce payments by restructuring the debt.

The first is how to navigate out of the current overhang of both private and public debt.

I can testify from personal experience that investors would flock to Greece once the debt overhang was removed.

Weak labor markets, low inflation, and debt overhang suggest that a fundamental re ordering of priorities is in order.

As a result, there is an overhang of illiquid financial institutions, whose holdings could be unloaded if they run into difficulties.

Such automatic borrower initiated filings, if made legal by Congress, could reduce the household debt overhang without the need for government subsidies.

And China s share of America s publicly held debt overhang increased more than five fold, to nearly 11 ( 1.3 trillion) by July 2013.

The collapse of asset bubbles in the 1990 s left Japan s financial system and private sector saddled with a huge debt overhang.

Had Greece quickly written down its debt burden by two thirds, it would have been able to shed its crushing debt overhang.

Moreover, they know from experience that there are no easy and immediate solutions to the West s debt overhang and structural impediments to growth.

But those now demanding further deficit financed stimulus must confront considerable evidence that an overhang of public debt impedes growth for a long time.

However, while the HIPC initiative has removed the debt overhang for many countries, the burden of debt service payments remains high (see table 1).

They could buy bad loans from lenders and forgive part of the principal payable by borrowers, simultaneously reducing lenders collateral requirements and borrowers debt overhang.

The amount of debt relief would then be determined on the basis of expected development assistance and the need to avoid a new debt overhang.

Or else they can wait until the overhang of excess capacity diminishes, capital goods become obsolete, and the economy s internal restorative forces work their gradual magic.

That may not sound like a recession, but the Fund s marginally positive projection primarily reflects the growth overhang from 2007, with hardly any new contribution in 2008.

Moreover, once a sufficient number of distressed entities sell their assets, prices will rise simply because there is no longer a potential overhang of future fire sales.

In both cases, the main argument for not removing the debt overhang came from bankers, who claimed that it would create havoc in financial markets for two reasons.

Third, the secular decline in their commodity prices had resulted in a debt overhang that siphoned off scarce resources that could otherwise have been used to fight poverty.

More broadly, the ECB s marginal lending facility is an indirect means of monetizing sovereign debt. It is an even less direct way to address the private, related debt overhang.

Item 4 Market access, market entry and competitiveness

Why wasn t the idea of contingent capital seized upon in earlier crises? Wasn t the same problem of debt overhang prominent in the banking crises of the Great Depression, for example?

Unless the regulated financial system is systematically audited, with weak entities stabilized through capital injections, asset purchases, or mergers, or liquidated quickly, the overhang of distressed institutions will persist, constraining lending.

But the health care market is not an ordinary market.

In exchange for emergency loans, all three countries have embarked on massive austerity. Yet, despite the tremendous social pain, this approach will make no dent in their large and rising debt overhang.

Of course, there are obvious governance problems with the eurozone. Most glaringly, the question of how to allocate the costs of some member countries unsustainable debt overhang has not been adequately addressed.

This differs substantially from the current approach (in which well capitalized entities are given even more capital), which does not deal with the overhang of illiquid assets that more distressed entities hold.

Market leaders The CRM market grew by 12.5 percent in 2012.

In any case, financial markets do not care much about the future framework for policy coordination in the eurozone. They need to know how the existing debt overhang will be dealt with today.

The theory of debt overhang the intellectual origin of the proposal explains why troubled banks are reluctant to issue new equity the benefits accrue mostly to the bank s bondholders and dilute existing shareholders.