August 2, 2012
A year ago, Europe’s sovereign debt problem reached the crisis stage. Since then, troubled governments have had to pay interest rates on bonds that have pushed them to the brink of insolvency.
European banks, holding much of that debt, are woefully undercapitalized. The European Central Bank practically gave away $1.2 trillion to banks to prod them to lend again, which they mostly haven’t. Greece defaulted on its debt, forcing bondholders to accept heavy losses; it also had to beg for a second bailout, destroying an already weak economy in the process. Heads of state toppled in France, Greece, Italy, Portugal and Spain. Spain sought a rescue package; Italy might yet need one.
None of the steps taken by European officials have been big or bold enough to convince the markets that the crisis is contained. Meanwhile, Europe is crumbling. On Tuesday, unemployment hit its highest level ever at 11.2 percent, or nearly 18 million people, in the 17-nation euro area. Joblessness among those younger than 25 in the currency bloc is 22.4 percent.
Economic activity has ground to a halt. Euro-area banks report declines in corporate demand for loans. Savings and investment are fleeing Greece, Italy and Spain, where they are most needed, for the safer confines of Germany, where three-year notes pay below-zero rates.