A less optimistic way of summarising recent news is to say that Europe has now decoupled from the rest of the world. It is already in recession, which may prove to be a deep one, and the debt crisis is arguably getting worse, not better.

Viewed in this light, it is clear that there needs to be a capital account transfer each year amounting to about 5 per cent of German GDP from the core to the periphery. Without that, the euro will break up. Until 2008, this transfer happened voluntarily, by private sector flows, mainly in the form of bank purchases of higher yielding sovereign bonds in the peripheries, and to a lesser extent via asset purchases (notably housing in Spain). Since 2008, these private flows have dried up, and in fact reversed, so the public sector has had to step in. It has done so in the form of direct sovereign loans, and more importantly by international transfers which have been heavily disguised within the balance sheet of the ECB. Although disguised, these transfers are very real.

The eurozone’s proposed solution to this problem – budget contraction plus economic reform in the debtor nations, with no change in policy in the creditor nations – is very familiar to students of balance of payments crises in fixed exchange rate systems such as the Gold Standard or the Bretton Woods system in the past. It is not impossible for these solutions to work, but they are very contractionary for economic activity, and very frequently they fail. When they fail, they lead to devaluations by the debtor economies, normally because the required degree of contraction proves politically impossible to undertake. That is where Greece probably finds itself today. Others may be in the same position before too long.

If leaders had agreed earlier to ease Greece’s debt burden and moved faster to protect countries like Italy and Spain — as U.S. officials had been urging since early 2010 — the worst might be behind Europe today, experts say.

Today, Greece’s problems have worsened so much that they threaten to rip apart the euro and the decade-old 17- country monetary union created within the European Union to manage the prized common currency. An endless series of crisis meetings has pushed Athens into imposing an increasingly strict program of austerity on the Greek public in return for the promise of two major bailouts from more credit-worthy European countries, along with the crucial support of the I.M.F. and the European Central Bank.

"It was quite obvious, by the spring of 2010, that Greek debt could not be paid off," said Richard Portes, a European economics professor at London Business School. "But in good faith, policy makers felt that Greece could grow out of its debt problem. They were wrong."

In February 2010, Yanis Varoufakis, a political economist with ties to Mr. Papandreou’s party, suggested publicly that Greece default. He was attacked by the Greek Finance Ministry for spreading what officials there viewed as treasonous notions.

He kept making his arguments, but a year later, after a debate on Greek public television with a government official, Mr. Varoufakis’s once-frequent invitations to speak on Greek state television started to dry up.

"On one of my last appearances," Mr. Varoufakis recalled, ‘‘my television interviewer said to me, ‘Please stop using the word default — it is getting me in lots of trouble.’" ...

By the spring [of 2011], the realization in Greece that it would need another bailout was pushing Mr. Papandreou to consider all options — even the extreme step of leaving the euro, according to one banker who talked with him at the time. But the subject of reducing Greece’s debt, which was on course to swell to more than 180 percent of the annual Greek economic output, was still taboo.

While the deal reached in late October will require bondholders to accept deeper losses, Europe, Greece and Mr. Dallara continue to insist that the transaction will be voluntary. As a result, there will be no need to activate Greek credit-default swaps, which would add to the complexity and cost. But in the eyes of many debt experts, this is simply another form of denial.

"You have to have a coercive element to make it work," said Mitu Gulati, a sovereign debt expert at Duke University Law School. "To not accept that means you are living in Alice in Wonderland."

Well, the IMF is an integral part of this eurozone rescue plan, which seems to be, I think, back on track. The biggest hole on it is this big bailout fund and who is going to invest in it and how it is going to protect Italy, which after all has nearly two trillion euros worth of debt. Greece has only 350 billion, and after the bank cut 250 billion.

So, the IMF, you know, after all, it's being run by a former French finance minister. It wants to play a bigger role in Europe, but the Americans don't really want to go back to Congress and ask for more money for the IMF, which, after all, is designed to help poor countries more than rich ones. [my emphasis]

Italy is in the crosshairs [of bond speculators] because Berlusconi has failed to deliver on promised economic reforms. He was forced to make new promises at last week's "summit to end all summits," yet after a Cabinet session Wednesday he arrived mostly empty-handed Thursday at the G20 meeting of industrialized countries, held in the French seaside city of Cannes.

"The fact that they haven't been able to reach consensus to put this package in place is quite worrying and illustrates political problems in Italy," said Iscaro, pointing to rising borrowing costs for the Italian government. "You're in a vicious cycle of contracting activity that puts public finances under more stress."

Among the promises Berlusconi made to EU partners but has failed to keep is selling off state companies, undertaking infrastructure spending to create jobs, and reducing Italy's notorious government bureaucracy to make its businesses more competitive. Separate from the EU promises, Italy is sinking under an aging population with costly government pensions and outdated labor laws.

Italy also has debts of about $2.6 trillion. The ratio of Italy's debt to its overall economy is around 120 percent. That debt ratio is what European leaders are trying to bring Greece down to by 2020, and it underscores how Italy and Greece face similar challenges.

An observation: As controversial as the activities of Occupy Oakland are, very few people, organizations or politicians have spoken out against the principles of this demonstration.

The strike and the encampment have attracted a mixed group of protesters and denizens of the community. Although the group claims it has no leaders, participants gather often for planning meetings, where they work out the logistics of a city hall camp-in.

The legal mechanism for the exit of Greece from the EU is murky. No member ever has left the EU. Greece's departure would raise investor fears of who's next.

If the Greek government collapses or a new one takes over and refuses to honor the debt agreement, the EU would cut off all bailout funding to Greece, Kirkegaard said. The European Central Bank would stop taking Greek financial assets as collateral and Greece would become a financial-pariah nation, untouchable for lenders everywhere.

That in turn would push what's been a protracted downturn in Greece into a possible depression. EU leaders would spend their energy trying to keep Greece's problems from spreading and bringing down other economies. Banks would have to set aside even more money as protective buffers and a credit freeze probably would spread across Europe, as it did during the U.S. financial crisis in 2008.

The European Central Bank, Kirkegaard said, probably would emulate the U.S. Federal Reserve and aggressively purchase bonds from member nations at rates more favorable than market participants would demand. Rating agencies such as Moody's Investors Service and Standard & Poor's could downgrade the credit ratings of Italy, Spain and France, raising borrowing costs for them all and making it hard for these nations to pull out of a downward economic spiral.

Sie hatten schon länger keine echte Gelegenheit mehr dazu. Seit anderthalb Jahren steht das einst stolze Land unter fremder Verwaltung, es ist de facto kein souveräner Staat mehr. Wichtigste Aufgabe der Regierung ist es, die Sparprogramme und Strukturreformen durchs Parlament zu bringen und umzusetzen. Diktiert werden sie von der stets strengen Troika aus EU-Kommission, Europäischer Zentralbank (EZB) und Internationalem Währungsfonds (IWF). Sonst gibt es kein neues Geld, und das Land wäre von jetzt auf gleich bankrott.

Nicht mehr Herr über seine Finanzen zu sein, um Geld betteln und dafür fast alles tun zu müssen, das ist für mittellose Staaten genauso würdelos wie für arme Menschen. Es kränkt die Seele, macht wütend und lässt einen verzweifeln. Wenn man weiß, dass die eigene Lage auch noch weitgehend selbstverschuldet ist, macht es das nicht besser, sondern nur noch schlimmer.

[They [the Greek people] haven't had a real opportunity to do that for a long time. Since a year and a half ago, it has no longer been a sovereign state. The most important job of the government is [now] to get a savings program and structural reforms through Parliament and implement them. That duty is dictated by the ever-severe Troika made up of the European Council, the European Central Bank (ECB) and the International Monetary Fund (IMF). Otherwise there will be no new money [for Greece], and the country would be bankrupt starting at that very moment.

To be no longer master of its finances, to beg for money and to have to do practically everything for it, that is just as degrading for a state without resources as it is for poor individuals. It sickens the soul, makes one furious and drives one to despair. And it doesn't make it better if one knows that his own situation is also to a large extent his own fault; rather it makes it much worse.]

The summit’s host, French President Sarkozy has expressed support for the financial transaction tax [also known as a Tobin tax], as has Rowan Williams, the Archbishop of Canterbury, who in a column in Wednesday's Financial Times called on the UK government to embrace such a tax. The White House response to such a proposal has been muted.

Under Secretary of Treasury for International Affairs Lael Brainard told reporters at the White House Monday that the administration was "very much in sync with Europe on their goal of ensuring both that large financial institutions bear their fair share of the burden, but also that they're discouraged from taking the kind of risky behavior that led to the crisis."

But she said the White House has proposed a "financial crisis responsibility fee" that would be paid by the largest financial institutions, not retail investors.

... there’s interesting moral hazard in the MF case. The firm, and its benighted chief, former Gov Corzine, appears to have been betting on a bailout. And it probably wasn’t a crazy bet, except for the timing, which was what sunk the firm. (I know it’s 20-20 hindsight, but betting on the alacrity of the European’s timing in their debt crisis is really a very risky bet.)

The firm surmised that the banks exposed to troubled sovereign debt would get bailed out, and thus leveraged up to buy a lot of that debt at a steep discount. Had the bailout come sooner, MF and their investors would have made a lot of money—at the expense of European taxpayers. A classic case of socializing losses and privatizing gains.

... if Greek defaults on its loans, global investors (fearing that a default in Greece sets a dangerous precedent) may yank their money out of Italy. This would almost certainly bust several big European banks – and generate panic on Wall Street. That's why Tim Geithner has been pressing Europe to bail out Greece.

The question I’m trying to answer right now is how the final act will be played. At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.

It all sounds apocalyptic and unreal. But how is this situation supposed to resolve itself? The only route I see to avoid something like this involves the ECB totally changing its spots, fast.

... the appearance of this story smells extraordinarily of mackerel. Cain becomes the bubble of the week. Almost immediately, Karl Rove dedicates the past two weeks to teeing up Herman Cain on the teevee. And it is not like Rove, to name only the most conspicuous character, is without friends and contacts in the National Restaurant Association. (Some scrolling required.) According to the good folks at the Center For Responsive Politics, we also discover that the National Restaurant Association has retained not only the lobbying firm founded by former Republican National chairman Haley Barbour and former Bush I hired hand Ed Rogers, but also another high-powered lobbying firm, Mehlman, Vogel, and Castignetti, the first two of whom had long careers as Republican congressional aides and operatives before hanging out the shingle. No real surprise, of course, but it does indicate that the Republican establishment — or that which remains of it — has decided that Herman Cain's free ride has ended. It's becoming a bit clearer that the Republican primary process may consist of lashing the party's entire base to a chair and forcing them all to listen to Mitt Romney long enough for the Stockholm Syndrome to take over.

You might argue that someone has acted on principle, that someone thought that the nation needed this information in order to make an informed decision. If that's the case, then why didn't anyone try to strangle the whole campaign in its crib by releasing this a month or two ago? The only way this makes sense is as something that someone kept in their pocket until they needed it. And, in dealing with a party in which Karl Rove is a power, I choose not to believe in coincidence.

If the facts as published were part of a memo to Politico’s editors, they would amount to a first-rate tip on a story. If Cain turns out to be a serial harasser, it will surely tarnish his image as the 2012 campaign’s most likable fresh face. ...

But in this case, it remains unclear whether this was merely a great tip or an actual bombshell. I respect Politico’s decision to keep the names of the women out of this, although they will surely emerge. Yet, the basic details of this "harassment" are essential so readers can judge its significance.