The first carriage to crumple was Greece, a country facing austerity and debt as far ahead as the eye can see. Now paying 14.9 percent on its debt, with unemployment rising and the government selling off state assets in a buyers' market, the Greek tragedy rolls on.

The second carriage to pile into the crash was Ireland, whose problem is less national debt than the insolvency of their over-stretched banks. And the latest survey of analysts suggests that Ireland may have to find another $39 billion for its banks after the third round of stress tests this week.

The third carriage is Portugal and, with the resignation of its government after failing to pass yet another austerity package through Parliament, the crumpling process has begun. Portugal has to refinance $20 billion in government debt over the next few weeks and, after the latest downgrade by Standard and Poor's, it will probably have to pay interest of an unsustainable 8 percent or more to do so.

The question is whether any other eurozone countries will follow those three carriages into the crumple zone. The obvious candidate is Spain, with some concern about the vulnerabilities of Belgium, Italy and France. So far, the market consensus seems to be that Spain, where austerity programs have pushed unemployment to 20 percent, is doing just enough to tackle the problems of its budget and its regional banks.

The unknown continues to be the politics of the euro crisis. At the European summit in Brussels at the end of last week, the leaders claimed to have secured the "grand bargain"' that Germany had long sought -- to agree to long-term economic and structural reforms by the crumple-zone countries in return for financing. In fact, what they agreed to was very much less impressive.

The main achievement was to agree in principle that the vaunted $704 billion bailout fund would be fully funded, although how this will be done isn't clear. In order to maintain the value of the bailout fund, the original plan said that $352 billion would always have to be held back as reassurance. They now have agreed to find a way to make all the money available as a new long-term safety net for the eurozone. But they couldn't explain how.

"We left it a little bit open," said German Chancellor Angela Merkel. "I cannot give you a definitive answer on this."

And for political reasons, the immediate bailout fund won't require the eurozone governments to find an immediate $56 billion, but only $1.4 billion a year. This was to save the political face, and also the political prospects, of two key eurozone countries that confront domestic defeat, Finland and Germany.

Merkel's government took a hammering in Sunday's regional elections in Germany and Finland faces an election in which the right-wing and anti-Europe True Finns party is soaring in the polls.

The other side of the grand bargain, the readiness of European governments to force through structural reforms and spending cuts, remains misty. European governments have a poor record of living up to their promises. Indeed, the first great holes on the original Stability Pact of 1999, in which governments agreed to keep their budget deficits less than 3 percent of gross domestic product, repeatedly torn by the French and German governments over the last decade.

The biggest problem of all, the elephant in the European home, wasn't addressed and it is the latest variant of Europe's age-old German problem. In the 20th century, two world wars demonstrated that Germany was big and strong enough to make two bids to dominate Europe but not quite big enough to succeed in the face of the giant coalitions that opposed them.

The new German problem is that the future of the eurozone and of Europe rests on the dominant German economy but the long-term prospects of German demographics are daunting. After three decades of dwindling birth rates there will simply not be enough Germans of working age to sustain the burden. Within 20 years, one-third of the German population will be over 60.

And in the short term, there is another elephant in the room: the vulnerability of German banks to sovereign defaults in the rest of the eurozone. Merkel and the other European leaders haven't mounted the bailouts of altruism but because defaults in Greece, Ireland, Portugal and Spain would face much of Europe's banking sector with a solvency crisis, if not with outright bankruptcy.

Over the coming weeks, the markets will raise their eyes from Japan's nuclear drama and the crises in the Arab world and took a longer, harder look at Europe's prospects. They will do so knowing that the European Central Bank is signaling that the era of low interest rates cannot be long sustained. Even as the debts grow, they are going to cost more to service. So the slow train crash continues its horribly fascinating career.

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News