by Calculated Risk on 5/30/2010 09:07:00 AM

NY Times editorial: The Transatlantic Crisis: Europe’s Endangered Banks

... Several [European countries] have weak governments that may not be able to carry through the prescribed fixes. Even if they do, the budget cuts are likely to make them even weaker.
...
This is a recipe for economic stagnation. It also may not avert a debt rescheduling by some of the weaker European countries, which would force European banks to take a cut on their holdings. Sitting on slim cushions of capital reserves, European banks are in no shape for a sharp drop in the value of their assets.

It would be best to recognize that debt restructuring is inevitable.
...
American banks ended 2009 with $1.2 trillion worth of total European debt. ... It would be foolhardy to assume this problem is far away.

From The Times: Spain races to avert banking crisis as euro faces slide

One of Spain’s biggest banks was this weekend negotiating a merger with five smaller rivals as part of a desperate government effort to restore confidence in the faltering economy, which threatens to drag down the rest of the eurozone.

Caja Madrid, the country’s second-largest savings bank, opened talks in the hope of beating the June 30 deadline to tap a €99 billion (£84 billion) government bank rescue fund.

And also from The Times: Greece urged to give up euro

THE Greek government has been advised by [private] British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.