European Debt Crisis - World Depression in the Making?

[Grifman]

http://www.marketwatch.com/story/eu-ban ... e_carousel" target="_blank

1. Greece will default very soon ...

”Banks must bite the bullet and take some big hits in their Greek loans. … Whether banks accept this ‘solution’ voluntarily or not, it will mean Greece is in default.”

2. The contagion of fear will spread …

Global investors know “if one major Western government can default, so can others.” They will refuse to lend “to highly indebted governments” or “demand outrageously high yields.”

3. European megabanks will collapse …

Some of the “largest banks will collapse under the weight of defaulting sovereign debts and … mass withdrawals … Spain … French banks” … the impact will ripple across “J.P. Morgan Chase, Bank of America​ and Citigroup … All three are in danger.”

4. EU governments suffer new credit rating downgrades ...

”France and Germany, will scramble to rescue their failing banks.” But “bank bailouts are seriously flawed” as “governments gut their own fiscal balance … suffer big downgrades,” or pay “far higher interest rates.”

5. Spain and Italy next to face default on their massive debts ...

With “$3.4 trillion in debt, or about 10 times more than Greece” they too risk default.

6. Global debt markets will suffer a critical meltdown ...

Anticipating “default by a country as large as Spain or Italy, nearly all debt markets in the world will freeze.” Withdrawals, panic “not only crush the borrowing power of the PIIGS” but threaten meltdowns in “France, Germany, Japan, the U.K. and the U.S.”

7. Vicious cycle: sovereign defaults, bank failures, global depression ...

Government defaults trigger more bank failures, “cut off the flow of credit to businesses and households, sink the global economy into a depression, and perpetuate the vicious cycle.”

More details here:

http://www.moneyandmarkets.com/7-major- ... ings-47579" target="_blank

Is he crying wolf or a Cassandra that should be heeded?

[noxiousdog]

If nothing is done, it is very possible he is correct. However, I think it's obvious (and dangerous) enough that they have to stop the dominoes before it gets to Spain. Italy and Greece are small enough to bail out. Spain isn't.

[El Guapo]

Yes and no. No offense to Greece, but I'm not sure I'd call them a "major Western government." It's not like we're talking about France or Germany here. But the chain reaction where Greece defaults putting other European banks in trouble then causing economic problems in major European countries which continues to spread is indeed scary.

[tru1cy]

Will this affect China in anyway? I know they have been buying debt like crazy but this has to affect them, right?

[noxiousdog]

Will this affect China in anyway? I know they have been buying debt like crazy but this has to affect them, right?

I doubt they have been buying a significant amount of Greek debt. China tends to buy relatively stable currencies. Their goal is to keep the value of their own currency low, not chase interest.

[hepcat]

Yes and no. No offense to Greece, but I'm not sure I'd call them a "major Western government." It's not like we're talking about France or Germany here. But the chain reaction where Greece defaults putting other European banks in trouble then causing economic problems in major European countries which continues to spread is indeed scary.

Slightly off topic, but NPR had a report on the economic crisis in Greece last spring. I thought it was interesting that purposely avoiding paying taxes is almost considered a Greek citizen's right by a lot of folks. The prevailing attitude was "the government just spends it on themselves, so why should I pay into that kind of corruption" in every interview they had. They interviewed folks who seemed proud of the fact that they'd been cheating on taxes. It wasn't helped by the fact that the government couldn't afford to bolster their tax collection agencies and therefore didn't have the manpower to actually enforce collection. A vicious catch 22.

[Arcanis]

Yes and no. No offense to Greece, but I'm not sure I'd call them a "major Western government." It's not like we're talking about France or Germany here. But the chain reaction where Greece defaults putting other European banks in trouble then causing economic problems in major European countries which continues to spread is indeed scary.

Slightly off topic, but NPR had a report on the economic crisis in Greece last spring. I thought it was interesting that purposely avoiding paying taxes is almost considered a Greek citizen's right by a lot of folks. The prevailing attitude was "the government just spends it on themselves, so why should I pay into that kind of corruption" in every interview they had. They interviewed folks who seemed proud of the fact that they'd been cheating on taxes. It wasn't helped by the fact that the government couldn't afford to bolster their tax collection agencies and therefore didn't have the manpower to actually enforce collection. A vicious catch 22.

That is a scary thought. It is one of my concerns over the country pushing for more entitlements and taxing the "rich". As the rich seems to be expanding downward in actual income levels. I'd be rather concerned about what happens when they start cheating their taxes, more so than now, and what level of draconian measures the government will take to get their money.

[LawBeefaroni]

Is he crying wolf or a Cassandra that should be heeded?

Somewhere in the middle. Worst case, yes. But it's not inevitable. Greece needs to get boxed around the ears and France, Germany, etc have to share some pain. The problem is that the Eurozone members share fiscal responsibility/liabiity but not tax or fiscal policy. You have the ants and the grasshoppers living together.

[hepcat]

I'd be rather concerned about what happens when they start cheating their taxes, more so than now, and what level of draconian measures the government will take to get their money.

Considering that more than a few corporations pay little to no taxes thanks to offshore tax shelters and "gaming the system", I think your scenario already exists and needs fixing, not the other way around.

[AWS260]

The Economist ran an editorial about this a couple of weeks ago.

In the aftermath of the Lehman crisis, policymakers broadly did the right thing. The result was not a rapid return to prosperity in the West, but after such a big balance-sheet recession that was never going to happen. Now, more often than not, policymakers seem to be getting it wrong. Their mistakes vary, but two sorts stand out. One is an overwhelming emphasis on short-term fiscal austerity over growth. Fixing that means different things in different places: Germany could loosen fiscal policy, while in Britain the reins should merely be tightened more slowly. But the collective obsession with short-term austerity across the rich world is hurting.

The second failure is one of honesty. Too many rich-world politicians have failed to tell voters the scale of the problem. In Germany, where the jobless rate is lower than in 2008, people tend to think the crisis is about lazy Greeks and Italians. Mrs Merkel needs to explain clearly that it also includes Germany’s own banks—and that Germany faces a choice between a costly solution and a ruinous one. In America the Republicans are guilty of outrageous obstructionism and misleading simplification, while Mr Obama has favoured class warfare over fiscal leadership. At a time of enormous problems, the politicians seem Lilliputian. That’s the real reason to be afraid.

[noxiousdog]

I'd be rather concerned about what happens when they start cheating their taxes, more so than now, and what level of draconian measures the government will take to get their money.

Considering that more than a few corporations pay little to no taxes thanks to offshore tax shelters and "gaming the system", I think your scenario already exists and needs fixing, not the other way around.

There are very few corps that pay little to no taxes (except for those that have had negative earnings for a number of years), but if there are so many, please list them and the years covered.

[LawBeefaroni]

I'd be rather concerned about what happens when they start cheating their taxes, more so than now, and what level of draconian measures the government will take to get their money.

Considering that more than a few corporations pay little to no taxes thanks to offshore tax shelters and "gaming the system", I think your scenario already exists and needs fixing, not the other way around.

There are very few corps that pay little to no taxes (except for those that have had negative earnings for a number of years), but if there are so many, please list them and the years covered.

The Double Irish and Dutch Sandwich aren't just dirty sex. For example, Google paid 2.4% in taxes.

Forgive me if I'm too lazy to sift through fortune 500 tax receipts. I'll just leave it at this:

Google, the third-largest U.S. technology company by market capitalization, hasn’t been accused of breaking tax laws. “Google’s practices are very similar to those at countless other global companies operating across a wide range of industries,” said Jane Penner, a spokeswoman for the Mountain View, California-based company. Penner declined to address the particulars of its tax strategies.

[hepcat]

what lawbeef said.

[noxiousdog]

It's not a loophole. It's common sense. And to an extent, you're right. They are getting away with low rates, but I'm entirely unconvinced they should be paying them to the US government. Likely, they "owe" them to some foreign government.

If a company opens a business in the US, they pay US taxes. Should they really pay US taxes AND their home country taxes?

And that 2.4% is on foreign income specifically.

Overall, they paid 21%, 22%, 27%, and 26% going back 4 years.

This is why I continue to believe the corporate rate should be close to zero, but they should be forced to distribute all (or most) of their profits as dividends which can easily be taxed at ordinary income rates.

[noxiousdog]

what lawbeef said.

I don't consider 21%-27% "little to no."

[hepcat]

what lawbeef said.

I don't consider 21%-27% "little to no."

But I do consider 2.4 percent to fit that description perfectly. I never said all, i said more than a few. That article supports that belief by pointing out more than a few corporations take advantage of those loopholes (whether you want to call it that or not is irrelevant to me, i feel it is), and that more are preparing to in the future. This is interesting reading as well on the subject.

But this discussion becomes even more difficult when folks have different definitions for "little to no", I suppose.

[LawBeefaroni]

And that 2.4% is on foreign income specifically.

In a thread on "world depression in the making" it's somewhat relevant though, right? And much of that "foreign income" is transferred from the US. It's a tax dodge that lowers their taxable income in the US even though it is, we all know, US income.

This is why I continue to believe the corporate rate should be close to zero, but they should be forced to distribute all (or most) of their profits as dividends which can easily be taxed at ordinary income rates.

This is pretty hands on. You'd be severely limiting their free cash flow, cash reserves, investments...

Plus, if companies are this creative at reducing taxable income, why believe they wouldn't put similar effort into reducing profits?

[Arcanis]

Yeah I see the movie companies as the poster child for how they would lose money on everything to avoid taxes.

[hepcat]

Yeah I see the movie companies as the poster child for how they would lose money on everything to avoid taxes.

It's Springtime for Hitler!

[RLMullen]

This is why I continue to believe the corporate rate should be close to zero, but they should be forced to distribute all (or most) of their profits as dividends which can easily be taxed at ordinary income rates.

This is pretty hands on. You'd be severely limiting their free cash flow, cash reserves, investments...

Plus, if companies are this creative at reducing taxable income, why believe they wouldn't put similar effort into reducing profits?

... because if they reduce profits, their market price will plummet.

[LawBeefaroni]

Plus, if companies are this creative at reducing taxable income, why believe they wouldn't put similar effort into reducing profits?

... because if they reduce profits, their market price will plummet.

Why? Maybe I should have put "reducing" in quotes. Hiding, as with taxable income.

If they disburse the profits as dividends, their market value will drop an amount equal to the disbursement. If they pay $100M in profits out as dividends, their market cap will (should) drop about $100M.

If, on the other hand, they are able to keep that $100M within the company, they don't lose $100M in market cap.

[noxiousdog]

In a thread on "world depression in the making" it's somewhat relevant though, right? And much of that "foreign income" is transferred from the US. It's a tax dodge that lowers their taxable income in the US even though it is, we all know, US income.

How can it be US income if it's never repatriated?

I don't disagree that it's a problem but I don't know that you can do anything about it. The problems are Ireland, the Netherlands, and Bermuda.

This is pretty hands on. You'd be severely limiting their free cash flow, cash reserves, investments...

You'd only be limiting their investment capital, which you can raise the old fashioned way with equity offerings and bonds. You would, however, be seriously curtailing their growth rates, which I thought we decided was a good idea.

Plus, if companies are this creative at reducing taxable income, why believe they wouldn't put similar effort into reducing profits?

Did you really just say that? I mean I guess you could reduce you profits, but that doesn't strike me as a company you'd want to invest in and pay top dollar to their CEO. It's not like people are flocking to invest in non-profits now.

And yes, of course, there would be the usual booking to quarter and all of that. Certainly some deferral and want not. But it certainly hasn't seemed to hurt REITs any.

[El Guapo]

This is why I continue to believe the corporate rate should be close to zero, but they should be forced to distribute all (or most) of their profits as dividends which can easily be taxed at ordinary income rates.

I'm surprised that you would go this way, since you seem to have libertarian leanings. At best it seems to have the government meddle too much in how companies use their money. Would money earned that is reinvested in the company count as profit? If yes, you're interfering with companies' ability / incentive to reinvest in themselves. If no, that's a mighty big tax exception that the companies could play with.

I'd think the better way to go would be to lower the nominal rate but abolish most or all of the exceptions.

[noxiousdog]

If, on the other hand, they are able to keep that $100M within the company, they don't lose $100M in market cap.

But it still has to show up on their books. That's why we have financial statements and auditors.

[RLMullen]

Why? Maybe I should have put "reducing" in quotes. Hiding, as with taxable income.

You cannot hide revenue and profit. If you reduce profit, the reduction will be noted as an expense. The fact that companies report a lower profit on their taxes is due to the government allowing favorable expensing rules, and offset of prior-year losses in order reduce their tax bill... in other words blame congress. In simple terms, companies do not reduce their profit to avoid taxes, instead they report lower profit ON their taxes because the government allows it. Compaines do not report their "taxable profit"... I'm not saying that the number is unavailable, but that it is not a number that drives their stock price.

If they disburse the profits as dividends, their market value will drop an amount equal to the disbursement. If they pay $100M in profits out as dividends, their market cap will (should) drop about $100M.

If, on the other hand, they are able to keep that $100M within the company, they don't lose $100M in market cap.

No. Market capitalization is simply the number of outstanding shares multiplied by the stock price. The stock price is determined by the market.

Disbursing $100M of profits as dividends reduces a company's assets and equity, and SHOULD be viewed as a good thing by the market thus pushing up its stock price which would increase its market cap. If the market were to react negatively to a dividend payout, it would be because our capital markets have been perversley twisted in the past thirty years such that today's investors are much too focused on capital appreciation to the exclusion of everything else.

[noxiousdog]

Disbursing $100M of profits as dividends reduces a company's assets and equity, and SHOULD be viewed as a good thing by the market thus pushing up its stock price which would increase its market cap. If the market were to react negatively to a dividend payout, it would be because our capital markets have been perversley twisted in the past thirty years such that today's investors are much too focused on capital appreciation to the exclusion of everything else.

Lawbeef is right. In theory the value of the company should be equal to the total future earnings potential of the company discounted to present value. Therefore if you take $100,000 out of the corporate coffers and give them to the shareholders, your market cap should drop by $100,000.

The market cap should equal this number, though it quite often doesn't. And just because people are willing to pay too much (or too little) doesn't really affect the true value of the company.

[LawBeefaroni]

Why? Maybe I should have put "reducing" in quotes. Hiding, as with taxable income.

You cannot hide revenue and profit. If you reduce profit, the reduction will be noted as an expense. The fact that companies report a lower profit on their taxes is due to the government allowing favorable expensing rules, and offset of prior-year losses in order reduce their tax bill... in other words blame congress. In simple terms, companies do not reduce their profit to avoid taxes, instead they report lower profit ON their taxes because the government allows it. Compaines do not report their "taxable profit"... I'm not saying that the number is unavailable, but that it is not a number that drives their stock price.

Well, yeah, that's the point. They will channel all profit into "expenses." If you have to pay dividends on all your profit, it's pretty easy to turn that profit into something else to avoid paying dividends. Share buybacks, investments, M&A, anything to keep from losing potential free cash flow. By forcing a company to pay all profits as dividends you are stunting their growth.

If they disburse the profits as dividends, their market value will drop an amount equal to the disbursement. If they pay $100M in profits out as dividends, their market cap will (should) drop about $100M.

If, on the other hand, they are able to keep that $100M within the company, they don't lose $100M in market cap.

No. Market capitalization is simply the number of outstanding shares multiplied by the stock price. The stock price is determined by the market.

Disbursing $100M of profits as dividends reduces a company's assets and equity, and SHOULD be viewed as a good thing by the market thus pushing up its stock price which would increase its market cap. If the market were to react negatively to a dividend payout, it would be because our capital markets have been perversley twisted in the past thirty years such that today's investors are much too focused on capital appreciation to the exclusion of everything else.

"No?" Seriously straight up no? I'm familiar with market cap, are you familiar with ex-dates? Sure dividends increase the appeal of an equity and can drive up the price but on ex-dividend dates shares typically drop in price an amount equal to the dividend, other daily market forces notwithstanding. If you pay out $100M, the market cap drops ~$100M.

Look at it this way. You take the perceived value of the company. Some of that value includes cash. Cash is the easiest part of a company to value. You remove $X in cash (dividends, SEC fine, whatever). The company is worth $X less. Easy valuation. This happens every day in equities markets with dividends.

Note, as you state, that market cap is a factor of shares outstanding and share price. And that, as you also state, share price is a factor of the market. Well, the market takes dividends into account when pricing shares.

[noxiousdog]

Well, yeah, that's the point. They will channel all profit into "expenses." If you have to pay dividends on all your profit, it's pretty easy to turn that profit into something else to avoid paying dividends. Share buybacks, investments, M&A, anything to keep from losing potential free cash flow. By forcing a company to pay all profits as dividends you are stunting their growth.

None of those are expenses.

edit: And again, it's not like there aren't companies that are operating under this model.

[LawBeefaroni]

Well, yeah, that's the point. They will channel all profit into "expenses." If you have to pay dividends on all your profit, it's pretty easy to turn that profit into something else to avoid paying dividends. Share buybacks, investments, M&A, anything to keep from losing potential free cash flow. By forcing a company to pay all profits as dividends you are stunting their growth.

None of those are expenses.

Well, I did use quotes. I'm talking about anything that is not specifically profit on the balance sheet that will be given away as a dividend under the new hypothetical rules. But M&A is not an expense? Share buybacks are not an expense? What are they?

[noxiousdog]

Well, I did use quotes. I'm talking about anything that is not specifically profit on the balance sheet that will be given away as a dividend under the new hypothetical rules. But M&A is not an expense? Share buybacks are not an expense? What are they?

They are capital acquisitions I believe. It affects the balance sheet, not the income sheet.

Expenses are always changes on value of assets (depreciation) or operational costs.

It can get technical though. For example, when Berkshire buys $X of Wells Fargo, that doesn't hit the income statement. However, if the value of those shares goes up or down, it does.

[RLMullen]

Disbursing $100M of profits as dividends reduces a company's assets and equity, and SHOULD be viewed as a good thing by the market thus pushing up its stock price which would increase its market cap. If the market were to react negatively to a dividend payout, it would be because our capital markets have been perversley twisted in the past thirty years such that today's investors are much too focused on capital appreciation to the exclusion of everything else.

Lawbeef is right. In theory the value of the company should be equal to the total future earnings potential of the company discounted to present value. Therefore if you take $100,000 out of the corporate coffers and give them to the shareholders, your market cap should drop by $100,000.

The market cap should equal this number, though it quite often doesn't. And just because people are willing to pay too much (or too little) doesn't really affect the true value of the company.

No... Lawbeef, and you, are wrong. Dividend payout has no direct relation to market capitalization. If investors think that a dividend payout will negatively affect the future earnings potential of the company then its stock price on the open market will go down, reducing its market cap. The fact that you two think that this relationship is automatic is further evidence that our captial markets have become too focused on growth.

Explain to me why company's that pay regular dividends don't see a price drop every quarter? If this dividend disbursment SHOULD reduce market cap, then we would see quarterly bounces everytime one of these dividend-paying companies has a payout.

[stessier]

Explain to me why company's that pay regular dividends don't see a price drop every quarter? If this dividend disbursment SHOULD reduce market cap, then we would see quarterly bounces everytime one of these dividend-paying companies has a payout.

Um - we do see that happen. Every Ex-date like clock work.

[LawBeefaroni]

No... Lawbeef, and you, are wrong. Dividend payout has no direct relation to market capitalization. If investors think that a dividend payout will negatively affect the future earnings potential of the company then its stock price on the open market will go down, reducing its market cap. The fact that you two think that this relationship is automatic is further evidence that our captial markets have become too focused on growth.

No, I am not wrong. I don't think that the relationship exists, I know it does.

Explain to me why company's that pay regular dividends don't see a price drop every quarter? If this dividend disbursment SHOULD reduce market cap, then we would see quarterly bounces everytime one of these dividend-paying companies has a payout.

They do. Look at any chart. Remember to look at the ex-date, not the pay date.

Like I said, market forces on any particular day may mask the effect but it's pretty much a given. And yes, the fact that a company offers a dividend may contribute to a higher valuation. But the fact remains that when the dividend is paid out, the share price, and thus market cap, drop an equal amount to the dividend.

[RLMullen]

No... Lawbeef, and you, are wrong. Dividend payout has no direct relation to market capitalization. If investors think that a dividend payout will negatively affect the future earnings potential of the company then its stock price on the open market will go down, reducing its market cap. The fact that you two think that this relationship is automatic is further evidence that our captial markets have become too focused on growth.

No, I am not wrong. I don't think that the relationship exists, I know it does.

Explain to me why company's that pay regular dividends don't see a price drop every quarter? If this dividend disbursment SHOULD reduce market cap, then we would see quarterly bounces everytime one of these dividend-paying companies has a payout.

They do. Look at any chart. Remember to look at the ex-date, not the pay date.

Like I said, market forces on any particular day may mask the effect but it's pretty much a given. And yes, the fact that a company offers a dividend may contribute to a higher valuation. But the fact remains that when the dividend is paid out, the share price, and thus market cap, drop an equal amount to the dividend.

Yep... bonehead move on my part... carry on.

[GreenGoo]

Yep... bonehead move on my part... carry on.

Hugz for not plowing along head first even after going over the cliff.

far too many people are not willing to admit they are wrong, even when they realize it. So, kudos RLM

And I mean that sincerely.

[Matrix]

EU train wreck is interesting to watch. Grece, Spain, Itally, Ireland. The question is, just how long can they continue to bail out. Since even if one country comes of the rails, it will likely be domino effect as someone already have mentioned. EU itself might be in danger if that happens, since as LB said,

Is he crying wolf or a Cassandra that should be heeded?

Somewhere in the middle. Worst case, yes. But it's not inevitable. Greece needs to get boxed around the ears and France, Germany, etc have to share some pain. The problem is that the Eurozone members share fiscal responsibility/liability but not tax or fiscal policy. You have the ants and the grasshoppers living together.

The discrepancies is just large between largest and smallest countries. Hence, there can be only so much bail out, at some point they either need to cut the rope or shit hit the fan. Right now its very peculiar balance. In my view, global econ is pretty bad, and any large push/force of instability, will result in some large movement most likely downwards and than momentum will build up as things fall apart. Unless something drastic is done within EU, i don't see how much longer they can continue bailing out their compatriots, with whom they share very little in-common.

[Kasey Chang]

The whole EU concept is a joke any way. Let me explain why.

EU, or "EuroZone", is supposed to improve trade by offering common currency. However, you pretty much have to **** everybody else's currency. No more Francs, Deutschmarks, Drachmas, or whatever. It's all the Euro.

However, each country's currency is also a measure of its economic power, GDP, import/export, and so on. If you replace a country's currency with a stronger one, that country's economy may not be able to take it. And that's pretty much what happened in Greece, Portugal, Spain, Italy, and so on. Their economy wasn't doing that well, and they thought joining the Eurozone will improve trade and improve their bottom line. It did the exact opposite. Instead of having a currency to devalue (and thus, improve their export powers), they got NOTHING.

Currency power swing both ways. A "weak dollar", for example, helps exports (your stuff is cheaper) but hurts imports (your dollar doesn't buy as much). Strong dollar is the opposite: hurts exports (your stuff's more expensive), but helps imports (your dollar buys more). As your economy shifts your currency will shift as well. But Eurozone members no longer have this option. France and Germany have forced Euro to stay stable for the entire EuroZone. Individual countries are powerless to value or devalue the Euro, esp. the weaker countries... like Greece. Wikipedia said they cooked their numbers to get admitted to the EuroZone.

NPR's Planet Money was all over this past few months. Recently they did a segment on Argentina, the only country in recent history to default on their international loans. Argentina used to peg their money to the US Dollar. Unfortunately, their economy couldn't take it. When they finally took off the "peg", and defaulted, their money lost like half of its value overnight. Economy is ****ed, but they recovered. And they still have a currency to fall back on.

Greece doesn't even have the Drachma any more. They can't even unpeg themselves from the Euro. So it's bailout, or default.

[noxiousdog]

Good seeking alpha article on the crisis.

[Pyperkub]

Good seeking alpha article on the crisis.

Thanks. I also found McArdle's (briefer) look at the euro informative:

But the ECB's resolute failure to act so far hints that either they don't want to step in, or feel they can't--that they haven't really got the legal authority.

So in theory, I agree that all-in-all, it's probably in everyone's interest to save the euro. The problem is, I'm not sure it's in everyone's capacity.

[Kasey Chang]

Planet Money also had a look at ECB, which was headed by a German. German's worry is inflation. The Weimar Republic episode where the country simply printed more money created hyperinflation and Germans are determined to hold the Euro steady at all costs, even if it fries Greece and Italy. I think that head resigned recently though.

I think WBUR / Tom Ashbrook also did a segment on Greece, and some of the locals basically blamed the local politicians of selling out to the unions and created a welfare state which lead to this mess. They said that politicians basically bought votes with public money by promising pensions and such. Austerity measure, which cuts the government and pensions, is obviously not well received, and the European "coalition government" with "no confidence votes" exacerbates this problem as you must form a coalition to rule, and sometimes the backroom deals are not good for the long run.

Another part of the problem is while the EuroZone knows that it needs to increase the bailout fund, nobody wants to put up the money, or have the surplus to put on the money, and that means sell bonds and whatnot, but that also means everybody's credit will take a hit, and THAT they don't want either. France is barely hanging on their credit rating as they're facing a reduction much like the US.