The link between sovereign debt and bank debt has to be broken once and for all.

The sovereign debt and banking crises have become even more closely interlinked as banks bought greater amounts of their home countries sovereign debt.

Bank deposits, along with most other private and public debts, were denominated in that national currency.

Socializing bank debt is both unjust and will result in a future misallocation of resources.

The value of inherited government debts remains intact, and, aside from a handful of obligations to so called junior creditors, bank debts also remain untouched.

To do the same thing with bank debt could pull hitherto sound economies into the abyss, because bank s balance sheets are much larger than the volume of government debt.

Now it wants to socialize not only government debt by introducing Eurobonds, but also banking debt by proclaiming a banking union.

PALO ALTO Europe is suffering from simultaneous sovereign debt, banking, and currency crises.

Events in Cyprus have exposed two other dimensions to the clashes over Europe s dual sovereign debt and banking crisis.

History offers countless examples of the misallocation of resources that can result from socialization of bank debt.

These steps, it is argued, have taken both sovereign default risk and a banking crisis off the table.

But there remain little new securitization and bank debt offerings without government backup.

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

The medicine that has helped, and that remains necessary for the time being, is government debt.

Currently, they are wrestling with widening sovereign debt problems and high unemployment.

Debt, however, is a burden imposed by current citizens on future generations.

This correlation is hardly surprising, given the massive build up in public debts that countries typically experience after a banking crisis.

The European debt crisis, however, remains, and markets do not fully trust the current calm.

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.

After its banking crisis of 1987 1989, Japan experienced two decades of stagnation and deflation with skyrocketing government debt.

Where realistic debt restructuring scenarios indicate capital shortfalls, across the board conversion of bank debt into equity will be necessary.

In the end, they are different methods of forcing current and future generations to shoulder the burden of accumulated debt.

The most obvious parallel to Europe s current woes is the Latin American debt crisis of the 1980 s.

But the problem with austerity in the eurozone is more fundamental policymakers are attempting to address a sovereign debt crisis, though the real problem is a banking crisis.

Depreciation inside the eurozone in the form of deflation, on the other hand, would drive large parts of the real economy into excessive debt, because only the value of assets, not that of bank debts, would decline.

They would have to tackle the banking and the sovereign debt problems simultaneously, without neglecting to reduce divergences in competitiveness.

Fiscal expansion is always risky, as it adds to debt and raises dangers later. But, given where we are, the benefits exceed the costs in countries with sustainable debt.

Moreover, balkanization of economic activity, banking systems, and public debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.

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.

Bank secrecy

The Banking Conundrum

Banking

Bank signatories

Given this, we should expect Greek debt yields to rise further, despite the current IMF program.

A Latin American default would have brought down the banking systems of all the major industrial countries, causing something like a replay of the Great Depression.

This rendered potentially insolvent commercial banks, whose balance sheets were loaded with such bonds, giving rise to Europe s twin sovereign debt and banking crisis.

This is an exemplary model given the low level of overdue debts and effective use of borrowed loans by women, which also helps socialize bank credits.

When the recession is over, the US and virtually every other country will have substantially higher debt to GDP ratios.

The eurozone s problems certainly help the US sell more debt at lower prices for now.

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?

Getting Bank Culture Right

China s Banking Revolution

Bank charges

Opening of bank accounts

Reconciliation of bank accounts