"In following the steady downward trajectory of the EU debt crisis from here in the US, it seems disconcertingly similar to our recent mortgage meltdown. Our economic keepers at first assured us most confidently that the problem was confined to a small class of sub-prime mortgage and then regularly expanded the number of areas affected until-PRESTO!-we were in a full fledged credit crisis. With the EU crisis, I have this nagging feeling that there will be a very unpleasant banking event that may bring whole situation into a new crystalline focus."

Eoin Treacy's view Thank you for these observations which I'm sure others will also find of interest. Yes, there are some clear comparisons between the problems in the US mortgage market and the sovereign and banking crises in Europe. In all cases far too much credit was extended to the wrong counterparties, at the wrong interest rate and under the wrong terms. The financial alchemy of syndication and securitization were assumed to have dispensed with counterparty risk so that lending to just about anyone was deemed appropriate. This worked for longer than many assumed possible but eventually individuals, banks and governments with no ability to service their enormous debts went bust. We continue to live with the consequences.

Where the USA and Europe differ is in their approach to a solution to the crisis as it continues to unfold. The USA allowed Lehman Brothers to go bankrupt. The latter event was disastrous for the global financial system and the Europeans have so far decided not to allow any European bankruptcies. The ECB has instead played for time by making unlimited credit available at the discount window and accepting all manner of securities as collateral. However, despite massive capital inflows to the banking system and bailouts in the hundreds of billions for Greece, Ireland and almost certainly Portugal investors are now calling for a more convincing solution.

Until now, all the Eurozone's measures have been aimed at containing the problem. An endgame is now required. Pan Eurozone bonds are the solution required by the capital markets. Politicians facing recalcitrant electorates have little choice but to publically declare opposition but privately support such moves. Considerably wider powers for the European Financial Stability Facility (EFSF) are a step towards a central fiscal authority for the Eurozone.

Provided the trajectory of actual reform, as opposed to political brinksmanship, remains skewed towards fiscal union, a "Lehman moment" in the Eurozone crisis is less likely. That is not to say that every member of the currency union will be carried through this crisis. The odds are better than 50/50 that at least Greece will be ejected form the Euro. Such an event could have a short-term impact on asset prices but is unlikely to be of systemic importance.