"The problem in Europe is that the banking and national interests have been uncommonly incestuous over the years with banks in France owning the debts of companies in Spain and Spanish sovereign debt, while the banks in Spain own the debts of French companies and the French sovereign," Dennis Gartman, hedge fund manager and author of The Gartman Letter, wrote Friday. "In that environment, as one area of the economy contracts, others do also in a rush to liquidity and to the detriment of all."
The eurozone debt dilemma has been one of the root causes of market turmoil over the past two months, even though the problems have been known since at least early 2010.
Until recently, the popular narrative was that the debt burdens in smaller nations like Greece and Italy would be contained and not cause widespread contagion. That belief, though, has waned amid revelations that some European Union banks are having trouble raising capital. The ability to raise money would be critical in the event of defaults, as banks holding the restructured debt would have to recapitalize.
What this is yet another case of compounding a problem in the pursuit of life without consequences. If they just accept the pain and deal with the problem that they created, it will be better for everyone in the long run. All policies that only delay inevitabilities, or worse, try to avoid them altogether only magnify the eventual outcome, and in this case, spread it around so that it becomes a regional or global problem rather than a national one.