Europe's Debt Crisis Casts Cloud Over U.S. Economy

With all the worry over the ailing U.S. economy, Europe's debt crisis may have seemed a long way off.

But not anymore. The faint tinkle of alarm bells a few months ago are now clanging loudly. What began as a crisis in smaller countries, like Greece, Portugal and Ireland, is now creating serious issues in much larger economies like Italy, France and Germany.

Sarkozy told Obama euro zone to end crisis: source

French President Nicolas Sarkozy assured U.S. President Barack Obama on Wednesday the euro zone intends to resolve the euro crisis and support Greece, a French presidential source said.

The source, speaking on condition of anonymity, added the two leaders, who met in New York on the sidelines of the annual U.N. General Assembly session, also discussed the idea of including the Chinese yuan in the International Monetary Fund's special drawing rights (SDRs).

European stocks fall on Greek crisis

LONDON — European equities and the euro fell on Wednesday on fresh concerns over banks' exposure to indebted Greece, but losses were capped by expectations of more stimulus measures from the US Federal Reserve.

London's FTSE 100 index of leading shares slid 0.37 percent to 5,344.07 points in midday deals, Frankfurt's DAX 30 lost 0.98 percent to 5,517.05 points and in Paris the CAC 40 dropped 0.87 percent to 2,958.16.

Euro bonds are not the answer

Euro bonds are not the answer to the region’s raging financial crisis. The euro countries aren’t going to agree to guarantee each others’ debts in time to solve it. And, once it is over, neither euro bonds nor fiscal union is desirable. Market discipline is a better way of dealing with the current crisis as well as running monetary union in the long run.

One can understand why fiscally-challenged governments such as Italy’s and Greece’s are in favor of euro bonds. If they could issue debt which was guaranteed by all their partners in the euro zone, they wouldn’t find it so hard to borrow money. They would then no longer be under such pressure to do unpopular things like tighten their belts and reform their economies. One can also understand why investors are clamoring for the introduction of euro bonds. They would recoup the losses on their investments in fiscally-weak countries’ bonds.

Merkel’s Efforts in Euro Crisis Complicated by Berlin Vote

BERLIN — Chancellor Angela Merkel’s conservative party held its own in the closely watched Berlin regional election on Sunday. But her junior coalition partner is now in a political free fall, complicating her fight to contain the European debt crisis despite the infighting within her bloc.

As expected, Berlin’s popular mayor, Klaus Wowereit of the center-left Social Democrats, secured a third term, and his party received the most votes on Sunday for the Berlin city-state legislature with 28.3 percent, according to preliminary official results. That was down slightly from the 30.8 percent the party won in the previous election in 2006.