Financial markets remain captivated by the unfolding events in Europe. The authorities there are dealing with a very difficult combination of excess government debt and weak banking systems. The problems are compounded by the weak growth prospects in the region and increasing fear of widespread contagion.
A multi-country zone in which, despite a single currency, credit risk hampers the free-flow of banking finance is not what the inventors of the euro had in mind. One approach to correcting the situation is to reduce credit risk by increasing the capital of banks; certainly we need to move and are moving steadily in that direction.