The young will always innovate

Sned,
First – If there was growth, maybe they could have hung on, but that positive hope is turning into a negative reality.
(There is the Swedish model), but, the way out of these problems around the world in the past has always been the `wait and hope` model.  (When the IMF was involved it also included `austerity` and `currency depreciation`).
For Greece, Ireland and Portugal they have been trying the normal way (but without the currency depreciation).  Two main things make this model hopeless (the lack of currency depreciation and lack of growth prospects (prospects are important)).
The GIP problem has focused minds on other sovereigns and they are not looking good, because prospects do not look good.  In an arse-covering industry, if you can get out of the bonds….you get out.
The politicians have know about the `prospects`, because that is the sort of thing they are tuned into…..So, they have tried to manipulate the prospects, but all the while, the realities have been deteriorating.

We are now in a self-reinforcing cycle downwards of prospects and realities.
Note:  This affects the Euro area first and foremost because of its inability to depreciate the currency and the ECB’s reluctance to do unsterilized bond buying………..Whereas the UK has done both  (this is arse-covering for the bond buyers as they bonds will not `officially` default and their books will seem `look` alright)

Where were we~?
Ah yes, in a self-reinforcing cycle downwards.
Why would anyone want to own Italian, Spanish (and soon French bonds), if they are perceived to be `not arse-covering`~?
Well, as they are doing now……they sell them (though I know not to whom).  The lose money on the sale and it hits the books but arses are covered………..but this obviously becomes self-reinforcing (prices down / interest rates up) and the later ones out get a bigger hit than the first ones out.  Result – Scramble for the exits.
To get it all back under control, `prospects` must be changed.
Either the sovereigns themselves have to change the prospects, or an outside force has to do it.
In the US and UK that outside force is the central bank (which buys up lots of the bonds in a way that keeps `excess` from driving down prices)…………But, the ECB will not do this in sufficient quantities~!

Back to the banks.  They had borrowed big on making the small spread between borrowing and bond yield.  (and when I say big, I mean Big).  Some were content with huge leverage and small spread (German bonds), but many went for huge leverage and a slightly large spread on the PIIGS bonds.  They were making very little multiplied by lots, but when the bonds went the wrong way….they were losing lots multiplied by lots.  Add that to the same thing they did with dodgy shit out of Wall St. and you have a very ugly picture on the European banks’ books.

How ugly~?
I am guessing that the losses are / will be (over the next five years) let’s say…….2 trillion Euro~!
That number becomes irrelevant over a certain number (probably about 200 billion), because the banks fall well before the big number is reached.
Where do they fall to~?  They fall onto the sovereigns~!
You dig~?
What we end up with is a dynamic that is so messy that it may as well sort itself out by being a `mass default`.
What’s one of them when it is at home~?
All the money that pensioners thought they had…….they no longer have. 
All money that people thought they had, they no longer have.
Etc.
Rattle rattle bing bam, until everyone just starts again.
Some states will keep law and order together (along with contracts)…….some won’t.

They simply cannot let the spiral accelerate downwards.
The ECB must print the money to fill the holes.
Even that may not work, but it has to be tried.
It will be tried (whether the Germans like it or not~!)