Greece owes almost half a trillion euros, and containing the damage would likely require the recapitalization of banks, continent-wide deposit insurance (to prevent bank runs), and more aid to Portugal, Spain, and Italy, which seem to be the next countries in line to default.
To achieve this result requires a recapitalization, a debt exchange, a spinoff and share sales.
Barely a month ago, when Christine Lagarde, head of the International Monetary Fund, said many banks required serious recapitalization, their reaction was feigned shock.
Therefore we need recapitalization, not of banks, but of people.
Doing this quickly would require a banking system recapitalization that is truly hard to fathom.
In what the leaders saw as an important first step, banks would be required under the recapitalization plan to raise $147 billion by the end of June — enough to increase their holdings of safe assets to 9 percent of their total capital.
Last week, for instance, the American Enterprise Institute, a policy research organization, released a study by Joseph Gyourko, a professor at the Wharton School at the University of Pennsylvania, stating that the agency was underestimating its future losses by "tens of billions" and arguing that "the recapitalization required will be at least $50 billion, and likely much more".
Indeed Spain's banks now require upwards of €100 billion of recapitalization even before we deal with similar pressures on banks in Italy and even in France.
The Cypriot finance minister, Charilaos G. Stavrakis, said Monday that one Cypriot bank could require up to €1.5 billion, or $2 billion, of recapitalization to meet regulatory requirements by a mid-year deadline.
