''Europe on the Verge of a Political Breakdown'' Barry Eichengreen

''..The first urgent task is for Europe to bulletproof its banks. Doubts about their stability are at the center of the storm. It is no coincidence that bank stocks were hit hardest in the recent financial crash.

There are several ways to recapitalize Europe’s weak banks. The French and German governments, which have budgetary room for maneuver, can do so on their own. In the case of countries with poor fiscal positions, Europe’s rescue fund, the European Financial Stability Facility, can lend for this purpose. If still more money is required, the International Monetary Fund can create a special facility, using its own resources and matching funds put up by Asian governments and sovereign wealth funds.

This raises the danger that the EU and IMF will feel compelled to withdraw their support, leading to a disorderly debt default – and the social, political, and economic chaos that this scenario portends. In Greece itself, political and social stability are already tenuous. One poorly aimed rubber bullet might be all that is needed to turn the next street protest into an outright civil war..''

The second urgent task is to create breathing space for Greece. The Greek people are making an almost superhuman effort to stabilize their finances and restructure their economy. But the government continues to miss its fiscal targets, more because of the global slowdown than through any fault of its own..''

Barry Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley