It could also be relevant to purchases of debt from distressed member states.

The EFSF might be just enough to guarantee the public debt of the four problem countries, but certainly not their banking sectors liabilities as well.

The five countries in trouble will need to place tens of billions of euros in new debt and roll over even larger amounts of old debt.

Most European officials hope that, when combined with substantial public money to support troubled sovereign debt, it will.

Rather than resorting time after time to bailouts and delay, isn t there a way to more swiftly and decisively restructure the debts of insolvent sovereigns?

BRUSSELS The consequences of Europe s debt crisis are all too present throughout much of the European Union, as distressed economies attempt to stabilize and grow at the same time.

And now European Council President Herman Van Rompuy, backed by most of the troubled eurozone countries, is again proposing Eurobonds and debt mutualization schemes.

MUNICH In blatant violation of the Maastricht Treaty, the European Commission has come forward with one bailout plan after another for Europe s distressed economies. Now it wants to socialize not only government debt by introducing Eurobonds, but also banking debt by proclaiming a banking union.

26 The risk of litigation has increased with the emergence of vulture funds that would buy distressed sovereign debt on the secondary markets and then sue for full repayment once restructuring negotiations commenced.

Official resources currently are sufficient to bail out Greece, Ireland, and Portugal, but not to prevent a self fulfilling run on the short term sovereign and financial liabilities of Spain and other potentially distressed eurozone members.

In Europe, by contrast, there is almost no aggregate shield and almost no automatic support for member states in trouble better off states simply extend a conditional helping hand to prevent default.

And more austerity is a vital, if less well remarked on, condition of the European Central Bank s declared willingness to buy unlimited quantities of troubled countries short term government debt.

Even assuming China s willingness to help Europe s troubled economies, it would be able to contribute only a modest portion of the huge amount of financing required to restore confidence in European sovereign debt.

Prices of bank shares and the Euribor OIS spread (a measure of financial stress) signal a profound lack of confidence in the sovereign debt of distressed countries, with yields on ten year Greek bonds recently hitting 25 .

A strong, durable economic recovery would make such an approach workable. Most European officials hope that, when combined with substantial public money to support troubled sovereign debt, it will.

The European debt crisis, however, remains, and markets do not fully trust the current calm. The risk premia that financially distressed countries must pay remain high and signal continuing risk.

But the steep fall in the value of Italian and Spanish banks holdings of government debt, combined with mounting bad loans as a result of recessions exacerbated by punitive borrowing costs, is forcing the banks to rein in business lending further.

The European Union has finally committed itself to helping its financially distressed members.

It loaned on little collateral to shaky banks.

In the rest of struggling Europe, price adjustment is barely noticeable.

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.

Our lending can provide breathing space for countries in difficulty.

Now, reported NPLs amount to little more than 1 of assets.

For example, in financially distressed Spain, unemployment now exceeds 20 .

Investors in Europe s troubled economies are already getting enough as it is.

So you would think the same would be true for US households and embattled European governments.

And parts of the country are more similar to sections of troubled developing countries than to China s showplace cities.

Debt

The question is what can be done about them. Rather than resorting time after time to bailouts and delay, isn t there a way to more swiftly and decisively restructure the debts of insolvent sovereigns?

Europe and Japan are both facing difficult challenges, including rapidly aging populations and sputtering economies.

These are the right principles. They could be applied more effectively by capitalizing the institutions that are burdened by distressed securities directly rather than by relieving them of the distressed securities.

Debt and Delusion

Debt and Democracy

The Debt Delusion

Debt relief

The country simply cannot keep on piling debt upon debt.

But, like the struggling countries of southern Europe, France has few options.

MUNICH In blatant violation of the Maastricht Treaty, the European Commission has come forward with one bailout plan after another for Europe s distressed economies.

Nonetheless, the German model does hold some useful lessons for the eurozone s embattled peripheral countries today.

Debt Déjà Vu

Europe s Debt Wish

(d) Debt burden

Austerity and Debt Realism

Debt and America s Decline

The Debt Death Trap