The European Union is continuing to struggle to forge a unified response to Europe's debt crisis.  This week the head of Europe's central bank said the financial situation is more precarious than it was before the Wall Street bank Lehman Brothers collapsed in 2008, igniting the financial crisis. A consensus has grown that what is needed now is a "big bang," or a large-scale plan to address sovereign debts and calm markets. But political differences among members of the euro zone are complicating efforts to enact such a move. Countries with a trade surplus, most notably Germany, are hesitant to bail out debtor countries such as Greece -- and European publics are anxious about the further political integration that many of the bailout schemes would entail. Through our exports and our need for a functional, trust-based banking sector, the U.S. has a direct stake in Europe taking quick, strong action.

European debt crisis is "scaring the world." President Obama said this week, "So they [Europeans] are going through a financial crisis that is scaring the world and they are trying to take responsible actions but those actions haven't been quite as quick as they need to be." So what's wrong? As Fareed Zakaria explains, "The real problem is Italy, not Greece. Greece is a nano-state, representing 2 percent of the European Union's gross domestic product. Italy is a G-7 country. Italy's debt is 1.9 trillion euros, or 120 percent of its economy and greater than the debts of Spain, Portugal, Ireland and Greece combined. Italy's bonds are trading at 4 percent more than those of Germany, unprecedented in the euro's history and unsustainable. Italy is too big to fail but might also be too big to bail." Responses thus far have been misguided and ineffective. As The Economist writes, "So far the euro zone's response has relied too much on two things: austerity and pretence. Sharply cutting budget deficits has been the priority-hence the tax rises and spending cuts. But this collectively huge fiscal contraction is self-defeating. By driving enfeebled economies into recession it only increases worries about both government debts and European banks. And mere budget-cutting does not deal with the real cause of the mess, which is a loss of credibility." [Barack Obama via Reuters, 9/26/11. Fareed Zakaria, 9/14/11. The Economist, 9/17/11]

A "big bang" is needed, and the outlines of such a plan are forming, but the politics are tough. The reach of the crisis requires large-scale action. As The Economist writes, "The only way to stop the downward spiral now is an act of supreme collective will by euro-zone governments to erect a barrage of financial measures to stave off the crisis and put the governance of the euro on a sounder footing." The outlines of such a plan are becoming clear. As TIME writes, "The emerging euro-zone rescue plan has three strands. First, leaders would raise its bailout fund, known as the European Financial Stability Facility (EFSF), from €440 billion ($595 billion) to about €2 trillion ($2.7 trillion)... Second, Greece would be able to write off half its debt, currently estimated at 160% of GDP and rising... Finally, the plan would pump money into any undercapitalized European banks that run into trouble because of losses on government debt."

That plan will run up against fractious politics between euro zone countries. As the Los Angeles Times reports, "The call for ‘more Europe' won't be well-received by plenty of Europeans themselves, who are finding cohabitation increasingly irritating. Hostility among the frugal countries of northern Europe, such as Germany and Austria, toward their free-spending neighbors in the south, such as Italy and Greece, is growing. Solidarity is being put to the test this week in a series of votes in national parliaments on a plan to beef up the powers of Europe's bailout fund. Opponents of the proposal, whose passage is seen as crucial to getting a grip on the debt crisis, say they are fed up with rescuing countries that recklessly spent their way into trouble." [The Economist, 9/17/11. TIME, 9/27/11. LA Times, 9/28/11]

The crisis could have direct effects on the U.S. economy -- denting both our exports and the trust on which our banks depend. Wall Street Journal reporter Sudeep Reddy explains:  "The U.S. looks to Europe for two things. One is it's obviously a very important export market. More than a quarter of U.S. exports actually go to Europe. And if you look at multinational corporations from the U.S., they get a very large chunk of their sales from Europe. Those are developed markets. A lot of the things that the United States produces that are more advanced, whether they're high tech semi conductors, airplanes from Boeing, or some higher end cars. They go to Europe and Europeans want them. And that's why it's really important for an advanced market to be able to buy our products that we make, especially when we're importing so much from places like China that are making cheaper products. The other really important link, though, is through financial markets. And the one concern that Secretary Geithner has is that markets drop in Europe and it just spreads around the world. We see that every morning when you're watching Asian and European markets to get a sense of where the U.S. is going to go."

Reddy further notes that, "Money market funds in the United States, places where people park their money to really get an instant return, they are heavily invested in European markets and European bank debt. And so, by being funders to those banks, they are now starting to pull back and worry about the contagion and that's how bank runs begin. When people stop trusting their trading partners and pull back and that's - we're starting to see the early stages of that. And if it were to accelerate in a true panic, true crisis, then it's not only going to affect the money market funds, it's going to affect everybody tied to the money market funds. And that's where you have that enlargening circle of fear spreading around the world." [Sudeep Reddy via NPR, 9/27/11]

What We're Reading

Some American officials are questioning Adm. Mike Mullen's assertion that an anti-American insurgent group in Afghanistan is a "veritable arm" of Pakistan's spy service, saying the comments were overstated and contributed to overheated reactions in Pakistan and misperceptions in Washington.

Libyans are increasingly worried that their governing council's delay in delivering a new cabinet could undermine the revolution they worked so hard for.

As Syria plunges deeper into unrest, minority Christians have begun backing Assad out of fear for the future.

An Egyptian court has convicted Hosni Mubarak's powerful information minister on corruption charges and sentenced him to seven years in prison.

Afghan and coalition forces used a precision airstrike to kill a key Taliban leader in Afghanistan's Wardak province yesterday, military officials reported.

Iran raised the prospect of sending military ships close to the United States' Atlantic coast, in what would be a major escalation of tensions between the long-standing adversaries.

China plans to cancel or postpone some U.S.-China military exchanges after Washington last week announced it would upgrade Taiwan's fleet of F-16 fighter jets.

Russia's fallen finance minister was tossed out of his office and told that he would have to leave his government country house in what appeared to be swift retribution for defying President Dmitri A. Medvedev.

North Korea's challenges to Asia-Pacific security and stability were most acute in 2010, but remain a central concern for U.S. Pacific Command, Pacom's commander said.

A senior Brazilian police officer has been arrested on suspicion of ordering the murder of a judge who investigated police corruption.

Commentary of the Day

The Washington Post Editorial Board examines how to avert a civil war in Syria.

The Los Angeles Times Editorial Board explains why Russia can expect more stagnation for democratic reforms for possibly twelve more years.