This report in Der Spiegle reviews how the eurozone got into its current mess and it examines potential solutions to saving the euro. It concludes that there are only two solutions and both of them will be costly. One solution is for the economically sound states, primarily Germany, to be a transfer union that supports the weaker economies. It is doubtful that German voters would support that solution. The other solution is to have a smaller eurozone that consists of countries able to live by the rules that are supposed to prevail in the union. That will also be costly.
It remains to be seen how this will play out for the banking system in Europe and elsewhere in our interconnected financial system. A maze of derivatives, such as credit default swaps, connects the system together in some unknown fashion. The visible liabilities of the major European banks is known, and the impact of writedowns on credit availability will be substantial.
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