IN THE MORNING, EUROPEAN CRISES GETS NEW LEAD, PART I

Essentials of European Debt Crises

Ultimately there is a difference in Europe between its sovereign debt crises and the inability of its banks to function. Since December, we have learned that where banking functions can be buttressed, the ability of sovereigns to address their debt is more concerning.

Countries such as Portugal, Ireland, Italy, Greece and Spain have experienced their time in the media. However, so has IMF Global through declaring bankruptcy due to excessive bravado over risky European debt. Dexia, a major Belgium-French bank, likewise needed relief, for like reasons. With these developments, the nerves of the international banking community grew raw.  The LIBOR 3 month rate increase shows how short term rates grew to stress European banks on their loans.

Out of Europe, through last year, grew a worry of something larger than a Lehman Brother's collapse. Where Lehman witnessed a collapse of some $600B, markets saw a two prong problem in Europe. Firstly, Greece found the inability to pay its bond obligations and, secondly, banks through the region held not only Greek bonds, but PIIGS bonds--a moniker for the list of countries stated above.

If Lehman's withdrawal of $600B created enormous ramifications, what about a larger collapse occurring in any of the above countries? Should such a collapse occur, the foundations of European banking would be destroyed, given their investment in sovereign bonds. Accordingly, many methods of CPR and respiratory ventilators were deployed.

These devises of modern financial prosthetics sought to support the immediate need  and are new in global experience. Add to the experimental nature of these devises, the political trend of fiscal politicians to point the finger.....and politics will get bogged down. Then add the resignation of Prime Ministers and cabinet dignitaries, one can see an eroding of trust in the capacity to solve a crises.

The European debt crises is nothing short of countries once experiencing high tax revenues and politically leveraging such revenues into re-election promises. When times were very good, programs were created that even then went beyond existing tax revenue income. Sadly for the Eurozone, so many countries are on the same currency, but do not experience equal capacity for tax revenue, nor the ability to serve up political promises. This inequality, while living off the same currency, comes from an unequal capacity of economic growth, which is and has been driven by the economic leaders of the European Union.

In this quagmire, the international community responded through the IMF. Responses joined the European Financial Stability Facility....which sold bonds that encountered poor demand....and the European Financial Stability Mechanism....which might take a lead role. While European countries bring their support, international funds come through the IMF.

.