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Christian Noyer, the Governor of the Bank of France, says that the supervisory infrastructure and deposit guarantee structure for the eurozone has not kept up with the creation of a single currrency, leaving an obvious gap that has to be fixed. Of particular importance is the link between sovereign and banking risks that is behind dangers in today's eurozone crisis, especially in Spain, which he says should be broken. The creation of a single euroarea supervisory authority is a prerequisite for a deposit guarantee fund that will separate and delink bank and sovereign risks. The other step is to create a banking resolution scheme similiar to what the U.S. has setup, with the FDIC having a resolution plan to come in and unwind a failing bank, include large banks with systemic risk.

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The agreement reached Dec. 12, 2012 to setup a single supervisory authority for large banks in the eurozone is a major and historic step. The ECB takes up this role after parliaments in the eurozone countries ratify the agreement by March 2013.

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IMF Managing Director, Christine Lagarde says Greece should have 2 more years to achieve the deficit targets. Speaking at a news conference during the annual meeting of the IMF in Tokyo in Oct 2012, Lagarde said: "it is sometimes better, given circumstances.. to have a bit more time... This is what we advocated for Portugal, it's what we advocated for Spain, and it's what we are advocating for Greece, where I have said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program that is considered." A two year extension would add an estimated 20 billion euros to the financing cost for Greece, at the same it improves the chances for growth and means having a program that is more likely to work.

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This editorial in the Economist says Spain's economy has recovered to pre crisis levels by 2018 with growth at 3 percent. It says Spain had a bigger crisis than Italy and took stronger measures under prime minister Rajoy to fix problems in its banking system, address the housing crisis, and unemployment. Italy's steps by comparison were timid and faltering. Mr. Rajoy had his problems including corruption scandals in his party and a poor handling of the Catalan drive for independence. Yet Spain owes muchas gracias to Rajoy for his leadership in bringing Spain out of the housing and economic crisis, and for running the country for two and a half years after losing his majority in parliament.  Another difference with Italy is the generally favorable attitude to immigration for all parties. Of the newer parties Ciudadanos remains at the centre and the Podemos party remains to the left in politics, as part of the populist changes in Spain during the economic crisis. The new government of Pedro Sanchez has a positive attitude to immigrants and to women, with the largest number of women in the cabinet of any European country. ...

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In an interview with the Wall Street Journal Deutschland, Hans Werner Sinn, head of the Ifo Institute in Germany, says Greece's bondholders are overly exaggerating the effects on the eurozone of an exit by Greece. He sees it in the best interests of Greece to improve its competitiveness and return to growth by going back to the drachma. Just to get to the level of Turkey Greece would need to reduce prices by 31%, which is impossible to do within the eurozone without risking a complete breakdown in civil order. The best way to use the 130 billion euro second bailout package is to use it to recapitalize its banking system, says Sinn. Sinn says Portugal's faces the risk of a debt crisis following the crisis in Greece.

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Speaking to Cadena Sur, a Spanish radio network, EU Commission Vice President, Joaquin Alumnia said the EC will have plans to monitor the restructuring of each bank that gets EU funds. He said: "Whoever gives money never gives it for free. There will be people coming to Spain to make sure the money will be properly used."

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Dart Management, a vulture fund based in the Cayman Islands, received 90% of the 436 million euros bond payment by Greece on May 15, 2012. Dart is one of the holdout investors who did not participate in the Greek debt restructuring deal. It planned to sue the Greek government. This has implications for the other holdout investors with about 6-7 billion euros of Greek bonds. The reason given by the Greek government was that this caught Greece at a bad time- suing Greece could have tied up European bailout funds that Greece needs to make interest payments on its debt. The timing is bad from another standpoint, as it will further exacerbate voter discontent with the parties associated with the government just before the second Greek elections in June 2012.

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Mistakes French bank Societe Generale made with acquiring a controlling stake in Greek bank Geniki. Credit Agricole bank had a similiar experience with its stake in Greek bank Emporiki. In 2010 Societe Generale was forced to set aside 400 million euros for bad loans. Credit Agricole had to remove the CEO and higher executives in 2009 before introducing good loan criteria at Emporiki. Today Emporiki has loan loss provisions of 12.5% of gross loans, and Geniki has 21%, according to analysts. Dirk Hoffmann-Becking, analyst at Bernstein Research, estimates that a default that took out 30% from the value of these Greek banks loan book and 70% from Greek government bonds would result in a loss of 3 quarters of earnings for Credit Agricole and for Societe Generale 1.5 quarters of earnings. This would mean that the French banks would take 3 quarters longer to get their capital reserve ratios to 9% for new Basel III regulations.

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The US gets the lowest score among the large industrialized nations- way behind Europe- in its record on greenhouse gas emissions and air pollution policies, agricultural policies, smog, and other environment criteria in a survey done jointly by researchers at Yale and Columbia Universities. On regional smog the US has a very poor score.

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Efforts to change labor laws by Italy's prime minister, Mario Monti.

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With yields on ten year Greek bonds reaching new highs, the Economist says it is time to go to Plan B. The German government wants to see something different from a continuation of the 2010 plan and merely loaning more funds to Greece. One option is for Greece to pledge privatization proceeds as collateral for new loans. Another option is the restructuring of Greece's debt, even though the German government is reluctant to impose losses on holders of Greek bonds. But Trichet and the ECB are opposed to any restructuring. ECB officials fear this could cause a crisis like that caused by the collapse of Lehman Brothers in 2008. And privately ECB officials say they could go so far as to refuse to accept Greek bonds as collateral for ECB loans if a restructuring goes through. The contagion from a Greece default could affect Ireland, Portugal, and impact the European banking system and the ECB's own balance sheet. Yet a sounder plan would be for European governments to come up with the funds to recapitalize hard hit banks, knowing that Greece will never be able to pay back its loans under the current plan. The IMF and the German government should push for an orderly restructuring of Greece's debt as the only workable solution, says the Economist....

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The austerity plan that prime minister Belusconi of Italy set before parliament on August 29th was quite different to the plan he agreed to in negotiations with the European central bank. The negotiations led to support by the ECB with purchase of $30 billion of Italian bonds. Berlusconi left out a surtax on top incomes in the private sector. It also left out savings to be made at the local government level by mayors and governors. Berlusconi proposed a new pension calculation which would postpone the retirement of Italians by excluding military and university service. Also being prosposed by Berlusconi and opposed by unions is the extension of the retirement age for women. Unions say this will make it harder for Italian women to care for their grandchildren in a country without an adequate system of daycare. Slowly the whole package of austerity measures seems to be coming apart and this alarms ECB President Claude Trichet and his successor Mario Draghi.

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Krugman points out that the inflation adjusted wages of non-supervisory workers in the retail field in America has declined by 30% since 1973. He says there are no adverse effects on unemployment because workers in retail are not competing with workers in other countries as happens in manufacturing. They are also some of the lowest paid workers to begin with, and the numbers are not small. One estimate is that here are 30 million workers who would benefit from an increase in the minimum wage from the current level of $7.25 to $10.10. State by state comparisons provide proof of this as no evidence of losses in employment are to be seen when one state has raised the minimum wage and another neighboring state has not. Germany is facing a similiar problem of low paid temporary workers and a new coalition government is planning an increase in the minimum wage in 2014 as a response to increasing inequality and disparity in incomes developing in the last two decades.

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To get the agreement of the 27 countries engaged in the talks to set new banking rules, the new Basel III banking rules are being phased in over a protracted period. Some changes go into effect in 2013, but others will be put into effect by 2019. The focus on the new rules is how much capital, or "common equity" banks will be required to hold as a cushion to absorb losses in a crisis like that of 2008. Large banks will be required to hold 7% of their assets in common equity. By 2015, banks will have to begin building a 2.5% buffer of capital, which must be in place fully by 2019. No action was taken on issues such as requirements for banks to have access to ample liquidity, what systemically important banks should hold in capital, and establishing a counter cyclical capital buffer.

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Th Basel Committee on Banking Supervision set strict financial guidelines for capital and liquidity that banks have to hold, but failed to implement early compliance. Banks get 8 years to comply for most of the banks, and 13 years for some of the banks. Increasing capital requirements by triple the current levels in the form of current equity, as required by the new Basel rules, gives banks a larger buffer in a situation that some of their assets lose value in a crisis such as the one in 2008. The US argued for stronger requirements and early implementation. Germany held back the implementation timetable mainly because its regional banks are saddled with bad loans; which might require $100 billon capital infusion by the German government, if early compliance was set in the new rules. The result is that the Basel rules have not grasped the opportunity to act quickly to strengthen the banking system, according to Prof. Jeremy Stein of Harvard University, a former advisor to the U.S. Treasury Department. In Stein's view the timetable is so far out, that another crisis will probably take place before the implementation. In the event, regulators from the U.S., Germany, and other countries let fears of tightened lending by banks prevail to an extent where the new rules timetable is stretched way out for 8-13 years....

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The impact in Spain of the increase in sales taxes in July 2012, salary cuts for public service employees in Spain, and other spending cuts.

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Failure by EU leaders to take early and decisive action to reduce Greece's debt to sustainable levels in 2009. This was when the IMF report by Dutchman Bob Traa blew the cover off the Greek coverup of deteriorated finances. Policy missteps included ECB president Trichet and other EU leaders pushing austerity measures and not taking needed tough action on reducing the debt. By November 2011 a 50% reduction in debt with bondholders taking the losses is not enough to correct the situation. Greece's debt is discounted by 70% by Nov 2011. Analysts estimate an 85% reduction in Greek debt being necessary for Greece to pull through without a default.