Good excerpt from Hussman Funds today:
http://www.hussmanfunds.com/wmc/wmc120618.htm
The root of the European debt problem is very similar to how we got the housing bubble in the US. Here, we deregulated the banking system in 1999 (by repealing the Glass-Steagall Act), but kept a government backstop in place for the banks. As a result, lenders could go ahead and do irresponsible things, knowing that they could piggyback on the good faith and credit of Uncle Sam if things went wrong, and that’s exactly what happened.
Similarly in Europe, the creation of the Euro gave European countries a common currency, which for a while allowed them all to borrow at very similar interest rates, regardless of whether that borrowing was responsible or not. As a result, Greece, Portugal, Spain and Italy, among others, were able to run significant budget deficits without being penalized for it, knowing that they could piggyback on the stronger European countries like Germany if things went wrong.
