The current EZ crisis is not Europe’s first sovereign-debt crisis. This column shows parallels can be drawn from an all-but-forgotten episode, i.e. the 1990 Faroese crisis. Just like Greece, the Faroes got into difficulty because of excess borrowing facilitated by a currency union with an AAA-rated partner undeterred as the sovereign debt spiralled upwards. In the Faroese case, the crisis was eventually resolved when political necessities outweighed the cost of the bailout.

Will Italy be able cut its debt and abide by the new EU fiscal rules? This column presents a simulation of the evolution of the Italian debt-to-GDP ratio. It finds that Italy’s borrowing and saving plans are sustainable – even at today’s high interest rates.

For better or worse, banking is back in the headlines. From the desperate efforts of crisis-struck Eurozone governments to the Occupy Wall Street movement currently spreading across the globe, the future of banking is hotly debated. This VoxEU.org eBook presents a collection of essays by leading European and American economists that discuss both immediate solutions to the on-going financial crisis and medium- to long-term regulatory reforms.

Time is running out for EU leaders to put an end to the Eurozone crisis. This column explains how leaders could find a definitive solution to Greece insolvency, isolate solvent countries from possible Greek contagion, improve EU governance by creating a true European parliament, and refocus on a pro-growth policy mix.

The Eurozone crisis moved into phase 2 this August when the contagion spread to Italian debt, Spanish debt, and most EZ banks. Radical ECB actions prevented a disaster. This column argues that the ECB emergency policies are unsustainable politically and perhaps legally. The only policy combination that EZ leaders could agree on quickly enough involves political cover for ECB bond buying in exchange for national fiscal reforms of the German “debt brake” type.

Sovereign credit risk has emerged as the main challenge to global financial stability. This column explains how a deterioration in sovereign creditworthiness can damage bank funding conditions before discussing possible options for mitigating these effects. It argues that banks can only do so much and that the policymakers have a critical role.

The Eurozone crisis is not over. This column argues that solving it requires a voluntary debt swap. Creditors should be invited to swap old Greek bonds for new bonds backed by the European and IMF package. Par values would be the same but the coupons would be lower and the maturities doubled. The exact parameters should be set so the value of the greater certainty of payout was offset by the lower coupons. This would strengthen the euro, facilitate recovery of the $145 billion pledged, and yet force private creditors to realise that Eurozone support is not a one-way bet.

Markets liked the European Stabilisation Mechanism but a closer look shows that the money is announced but not available. When markets realise this, they may do to Portugal and Spain what they did to Greece. Worse still, crucial principles have been sacrificed for the sake of unconvincing announcements. The debt crisis is unlikely to go away and the monetary union will have to be reconstructed to re-establish the principle of collective fiscal discipline.

This weekend’s plan has been received positively by the markets, but it is too early to call it a success. Future monetary historians may judge it either a brilliant move or the first step on a slippery slope to ruin. The EU needs to set up an independent institution to vet fiscal plans of Eurozone governments and apply a sliding scale of sanctions. If the euro is to survive the current decade, Greece cannot happen again.

The European Stabilisation Mechanism is a major initiative, but is it enough? This column argues that more is needed. All EU bank supervisors should conduct stress tests to gauge their banks’ exposure to risky sovereign debt; those who fail should be re-capitalised or closed to ring-fence the problem. The ‘Mechanism’ should also be transformed into an institution that manages the Eurozone’s rescue contributions, supervises conditionality, and sets up mechanisms for orderly debt rescheduling should austerity programmes fail.