Fixing Europe's banks comes first

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by Roy C. Smith

The welcome oversubscribed debut of the eurozone bond helped to narrow spreads in the peripheral countries for a while, but the success of the issue cannot hide the fact that Europe has not yet devised a credible plan for restructuring its ailing sovereign borrowers.

And this it cannot do until it first addresses the huge contingent liability from the banking sector that continues to threaten these borrowers.

The undercapitalisation of banks represents a major overhanging claim on the eurozone countries. It is an unknown that must be clarified before the problems of excessive sovereign indebtedness can be dealt with convincingly. The banks have to be fixed first, then the sovereigns.

Read the full opinion editorial on eFinancialNews.com.

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