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Italy has 1.5 trillion euros of debt outstanding and this is the third largest behind USA and Japan. About 241 billion euros worth of Italian government bonds are expected to be issued in 2010, with 171 billon euros of this in redemptions. Interest rates need to be low to not widen its deficit. Italian debt is expected to go up to 118% of GDp in 2011 from 103% in 2007 according to Moody's Investors Service.By contrast Spain's debt s expected to go up by 38% in the same period. Italy's households are less burdened with debt than Spain's. still Italian bonds are affected, as yields widened between Italian and German government bonds to 1.58% compared to before the euro-zone rescue plan of 750 billion euros.

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The economic crisis is leading more Greeks to immigrate to Germany and Australia. Melbourne is home to the largest Greek speaking community in an urban area after Athens and Thessaloniki, and is expected to be a magnet for immigrants.

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The reason for contagion effects from the crisis in Ireland are the sizable exposure of UK and German banks, according to BIS. The UK banks have $222 billion in exposure to Ireland, followed by German banks which have $206 billion in exposure, and the US banks which have $114 billion in exposure. One British bank alone, RBS, has exposure of 54.4 billion pounds.

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ECB President Trichet calls for the equivalent of "a fiscal federation" for the European Union, a broadening of powers of the European Commission when it comes to fiscal issues. He called for an independent agency housed within the European Commission, with powers to hand out sanctions on countries with poor fiscal management. Such sanction have to come early and could take the form of suspending member's voting rights in financial affairs. Such reforms would have to come through secondary legislation, and not a renegotiation of the EU treaty.

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IG Metall, the union representing 3 million workers in metals and engineering industries, negotiated a 4.3% wage increase over 13 months. The union had asked for a 6.5% increase. Unions won wage increases of more than 6% in the public and telecommunications sectors. Workers in chemical, agriculture and hotel industries are pushing for increases of over 6%. The union wage negotiations help set the pattern for wage increases for the 41 million employed workers in Germany. This will help France and other EU countries close the gap with Germany in wages and improve competitiveness.

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Simon Nixon says the main problem with the E.U. bank stress tests of 2011 is that it did not test for sovereign defaults. For example Greek debt that is trading at 50 cents on the euro, was marked down 15%. And the lack of urgency to raise fresh capital is another problem. He says the real value of the tests comes from the asset disclosures that accompanied the tests.

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Economists at the IMF estimate that the public debt of the leading 10 industrialized countries would reach 114% of GDP by 2014, from 78% today. The governments then owe about $50,000 for each person in the country. Unlike World War II this situation is not temporary, because of the pension and health care costs of a population that is getting older. So what is to be done? Without the stimulus, the deep and prolonged recession would lead to greater damage to the finances of these countries. But continued in this manner the government would crowd out private investment and lead to lower economic growth. In some countries, Greece, Ireland, Italy Portugal and Spain it might lead to default, in other countries the real cost of the debt may be reduced through inflation. In the USA yields on 10 year Treasuries reached about 4% on June 10th, in December it was about 2%, a consequence of the economic recovery. If interest rates are allowed to rise too fast, it might abort the economic recovery. A rise in taxes is also not the answer, because in Europe the taxes are already at 40%, in America they are around 30%. But raising consumption taxes at the time when the economy was fragile, aborted a recovery in Japan during Japan's earlier crisis decade. A caution signal that says fiscal tightening can backfire, especially some years after a banking crisis when things are still in a weak condition. Some steps that can be taken are raising the retirement age, which would cut pension costs as people work longer and would boost tax revenues, and eliminating the tax deduction for home mortgage payments in the US. Its important to build credibility that the government and the legislative bodies are serious about controlling the finances and acting with prudence. In America wasteful health care spending is a priority, as this would reduce the burden on public finances considerably , and should be as much of a priority for the new Obama administration, as providing universal health care. With today's finances its not something that can be put off....

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How will posterity view Angela Merkel. As she ends a fourth term this BBC News report says it will remain a contested legacy. Much of what went right has already been written. A woman, a pragmatic scientist who hewed to the center not just as a scientist but with a knack for politics. Much of her early period in office was one in which she had to tackle the eurozone crisis. The euro's weakness had its roots in the way Mr Kohl allowed eurozone membership for countries such as Greece without adequate entry requirements. Some of the other problems were also left behind by an overzealous mentor Helmut Kohl who pushed for German reunification that never really happened in terms of bringing all east Germans into the idea of the Federal Republic. These problems in a neglected eastern part of Germany around Dresden were never tackled by Merkel. They were social issues that Merkel's pragmatic thinking failed to grasp. Letting in migrants from Arab and African countries was a move that Merkel made without realizing the full implications. This policy was reversed but led to the emergence of extreme right wing sentiment in parts of the country. It is left to a future German leader to tackle the social and economic disparities that affect Germany today. As time passes people reflect and a more careful view prevails. Dr Rudiger Schmitt-Beck reflects this when he says that the Merkel years were about  a bizarre mix of modernization and backwardness. Merkel rejected nuclear energy after the events at Fukushima nuclear plant in Japan. As a scientist she was able to tackle such issues. Yet on the major social issues of the day Prof. Schmitt-Beck of the University of Mannheim, says she left Germany "grotesquely behind"- on child care, climate policy, digitization, infrastructure building, on demographic change. These are the issues that the Social Democrats and the Greens are standing up for today. Ironically Merkel may be remembered more for something that is not even mentioned in this BBC report. This is the European solidarity shown by action to financially support all EU countries including Italy with EU funding during the coronavirus pandemic.  This may be her biggest achievement because it will be lasting. Without it Europe would not be the better place it is today, resilient in the face of the pandemic.  Seen from outside Merkel will be seen as a German leader who failed to see the potential for India and other Asian countries with almost twice the population of China. Fascinated with 13 visits to China she studied Chinese history, politics and economics, says the WSJ. And did too little to balance Germany's close business and trade ties with China, with efforts in India and other countries. Seen from America as pointed out in the WSJ front page on September 23, Merkel made no effort to rebuild US relations with the Biden administration after the tumultuous period under presidents Obama with spying on her phone and with Mr. Trump over the EU's participation in NATO defense. She seemed resigned to a view that America had seen her best years, a belief that today does not exist anywhere in America. US president Biden's first phone call to Merkel was put off for a few days says the WSJ, and Merkel continued to build close ties with China, ignoring the fact that this was a new administration closer to that of presidents FDR and Harry Truman who did so much for Germany. And a president very different than any of Biden's five predecessors. ...

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Greece's 2015 budget eases some previous cuts in spending. The economy is expected to grow at 2.9% in 2015. Included is a 30% reduction in a tax on heating oil and on a solidarity levy on income. The projected budget deficit is 0.2% for 2015, essentially a balanced budget.

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Herman Rompuy, president of the European Union, says Europe can't afford its social system without economic growth. Timothy Garten Ash, Professor of European Studies at Oxford, thinks Europe will have to totally redesign the social model and the social market economy. He points to comments about increasing economic growth as part of the "old rhetoric and totally indequate to the crisis we face." Instead of the social rhetoric he sees the need for the "language of blood, sweat and tears."

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France's public finances and how this affects the strength of the euro-zone package of 750 billon euros to support eurozone countries facing financial crisis. France has a ratio of government debt to GDP of 80%, with BNP Paribas forecasting it to go up to 90%. France's budget deficit is forecast at 8% for 2010. And with high taxes it is risky for President Sakozy to raise taxes. The government's target is to cut the deficit to 3% by 2013. Part of the plan is to close tax loopholes, unwind stimulus spending, and to address the social security deficit. Weakened by poor midterm election results and facing strong unions, Sarkozy's options are limited.

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This Journal editorial says Portugal's focus should be on making the Portuguese economy more competitive, and not merely the fiscal tightening and tax raising policies recommended by the IMF in the past. The focus should be on growth, a freer labor market, creating more efficient firms, and lower costs to compete in the European free trade zone. The euro currency reduced Portugal's borrowing costs in the past, but growth requires a more productive workforce. Only 28% of working age Portuguese have completed high school, showing an alarming lack of investment in education. (See the group on education in Portugal). The Journal also questions the lofty sounding agenda of the Lisbon agenda after the2000 EU summit in Lisbon, as it did not get down to addressing problems in individual countries.