Editorial Board
The One-Two Punch to Put Europe Back on Its Feet
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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.