Reuters/New York Times
February 20, 2012
Like drunks at a bar door, the euro zone’s governments and banks are leaning unsteadily on each other for support.
The banks know they have to sober up, but governments are urging them to have one more for the road.
European policy makers may have managed to stop the entire building from swaying in the past few weeks, but they have not yet found a way to break the dangerous mutual dependency between overindebted states and overleveraged banks.
‘‘If you don’t cut the dependency between sovereigns and banks, inevitably states will be inhibited by the risks of their banks and banks will be inhibited by the risks of their states,’’ said Jean Pisani-Ferry, director of Bruegel, a economic research group based in Brussels.
For almost a decade, European banks binged on euro zone sovereign debt, with the blessing of national regulators, making little distinction among German bunds, Italian Treasury issues and Greek government bonds.
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