The latest Europe debt-crisis action is pretty substantive, on a couple fronts. I'll get to that in a minute, but first it's worth pausing to look at a graphic from a new BIS report (PDF).
The graph shows lending between banks in different countries. It looks like a web made by an insane spider, which is precisely the point: Banks in the U.S. and Europe are connected by a dense web of interbank lending.
European banks hold a lot of European government bonds. So if one of the larger troubled EU countries (Spain or Italy) can't pay its debt, that could trigger problems throughout the European banking sector. And, as this graph shows, trouble for European banks could mean trouble for U.S. banks.
The latest from Europe:
1. For months now, there's been a sense that the EU could manage the fiscal troubles in Greece, Ireland and Portugal. The big worry was Spain, which has an economy that's bigger than the economies of the other three countries combined. But in the past few days, there have been new worries about Italy, which has an economy even bigger than Spain's. The spread between Italian and German government debt hit a euro-era high on Friday. And EU leaders are meeting today in part to try to figure out what to do about Italy, Reuters reports.
2. Up until now, the Greek bailout has been a series of loans — piling debt on top of debt — predicated on the idea that Greece just needs more time. But, the FT reports, European leaders finally seem to be accepting that Greece won't ever be able to pay off its debts, and are now looking to ways to reduce the country's debt.
Hat Tip: Business Insider