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Banks have so little loss-absorbing capacity that they stand permanently on the edge of disaster.

The eurozone must either make the industry far more robust, by hugely increasing equity capital, or consolidate fiscal capacity and tighten regulation, to ensure adequate eurozone-wide oversight and fiscal support.

Unlike their northern neighbors, the countries in the zone’s southern half have difficulty placing bonds — issued to finance their national deficits — with international capital investors. Nor are these countries competitive in the global economy, as shown by their high trade deficits.

If Greece were outside the euro zone, for example, it could devalue its currency

Instead, the fiscal strictures of the euro zone are forcing the country to curtail public expenditures, raise taxes and cut government employees’ salaries, actions that may push Greece into a deep depression and further undermine its already weak international credit standing.

In short, th

e euro is headed toward collapse.

hat opportunity and pull out of the euro, it wouldn’t be alone. The same calculus would probably lure Austria, Finland and the Netherlands — and perhaps France — to leave behind the high-debt states and join Germany in a new, stable bloc, perhaps even with a new common currency.

If Germany were to take t

A strong-currency bloc could fulfill the euro’s original purpose. Without having to worry about laggard states, the bloc would be able to follow a reliable and consistent monetary policy that would force the member governments to gradually reduce their national debt. The entire European economy would prosper. And the United States would gain an ally in any future reorganization of the world currency system and the global economy.

Despite the international standing of Deutsche Bank, Germany’s banking system is fragile. Several German banks required government support during the financial crisis. Highly fragmented (in part due to heavy government involvement) and with low profitability, German banks, especially the German Länder (state) owned Landsbanks, face problems. They have large exposures to European sovereign debt, real estate and structured securities.

Prior to 2005, the Landesbanken were able to borrow cheaply, relying on the guarantee of the state governments. The EU ruled these guarantees amounted to subsidies. Before the abolition of the guarantees, the Landesbanks issued large amounts of state-guaranteed loans which mature by December 2015.

While it insists on other countries reducing public debt, German debt levels are high—around 81% of GDP. The Bundesbank, Germany’s central bank, has stated that public debt levels will remain above 60% (the level stipulated by European treaties) for many years.

Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large.

German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered. The reduction in risk held by private banks has been offset by the increase in exposure of the German state, which assumed some of this exposure.

For example, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion as of April 2012. This exposure is also rising rapidly, especially driven by capital flight out of these countries.

Germany is now caught in a trap. Irrespective of the resolution of the debt crisis, Germany will suffer significant losses on its exposure – it will be the biggest loser.

Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.

In late May 2012, French President Francois Hollande provided a curious argument in support of eurozone bonds: “Is it acceptable that some sovereigns can borrow at 6% and others at zero in the same monetary union?”

Political will for integration

In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.

A credible deposit insurance scheme would have to cover household deposits (say up to euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around euro 1.3 trillion of deposits.

Given that the Spanish Economy Ministry reports that euro 184 billion in loans to developers are “problematic,” the additional recapitalization needs of Spain’s banks may be as high as euro 200-300 billion in additional funds (20-30% of GDP)

A Greek default would result in losses to Germany of up to around euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the eurozone.

Austerity or default will force many European economies into recession for a prolonged period. German exports will be affected given Europe is around 60% of its market, including around 40% within the eurozone. In case of a break-up of the euro, estimates of German growth range from -1% to below -10%. It is worth remembering that the German economy fell in size by around 5% in 2008, the worst result since the Second World War, mainly on the back of declining exports.

For example, Greece owes about euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.

But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone.

by Satyajit Das

Maybe Draghi’s policies can buy time for deeper “structural changes” in the periphery, although quite what those are and what difference they would make in the near term remains elusive

More likely, a shift in ECB policies would make the European situation uglier. For one, Draghi would essentially be conceding fiscal dominance, demonstrating that if governments run budget deficits, they can count on the central bank to finance them.

Perhaps Draghi is planning the same game with fiscal authorities that the Banca d’Italia used to play with Italian politicians in the 1980s and early 1990s -- keep interest rates low enough to prevent fiscal collapse, yet high enough to keep fiscal prudence as a priority. Make no mistake about it, inflation or not, this is a strategy of high real interest rates.

If one of five competing labs is alone in finding an effect, that result is the one likely to be published.

The effect is amplified by competition for a shrinking pool of grant money and also by the design of so many experiments — with small sample sizes (cells in a lab dish or people in an epidemiological pool) and weak standards for what passes as statistically significant.

Among them is a paper in which C. Glenn Begley, who is chief scientific officer at TetraLogic Pharmaceuticals, described an experience he had while at Amgen, another drug company. He and his colleagues could not replicate 47 of 53 landmark papers about cancer. Some of the results could not be reproduced even with the help of the original scientists working in their own labs.

Scientists talk about “tacit knowledge,” the years of mastery it can take to perform a technique. The image they convey is of an experiment as unique as a Rembrandt.

The problem stands to get worse. It has been estimated that the corpus of scientific knowledge has doubled in size every 10 to 15 years since the days of Isaac Newton.

The U.S.D.A. must consider salmonella that’s been linked to illness an “adulterant” (as it does strains of E. coli), which would mean that its very presence on foods would be sufficient to take them off the market. Again, it’s almost as simple as that. (Sweden produces chicken with zero levels of salmonella. Are they that much smarter than us?)

From a standing start, China now has 12% of graduates in the world's big economies - approaching the share of the UK, Germany and France put together. The incumbent superpower, the United States, still towers above with 26% of the graduates.

The curriculum as it stands now, he said, is in “lockstep” with how mechatronics is taught in Germany.

The ECB’s Outright Monetary Transactions programme was instrumental in reducing Spanish government bond yields. This alleviated the Spanish fiscal position, but did not make it sustainable. The continuing unsustainability of the Spanish government debt has to do with two factors: First while r (the interest rate) declined, g (nominal growth) remained much lower in Spain than in the UK. The latter was due to the deflationary forces in the Eurozone – themselves a result of excessive austerity and the absence of currency depreciation (which was made possible in the UK thanks to the expansionary monetary policies of the Bank of England).

As US coal demand declines, more US coal is going to Europe, where low CO2 prices and high gas prices are increasing the competitiveness of coal in the power generation system.

NATO asks member states to spend 2 percent of their gross domestic product on their armed forces, yet only a handful of them actually do. Estonia, the small Baltic state at the alliance’s far eastern edge, is one of them, and Poland, by far the largest and richest country on that flank, is at 1.95 percent.

Latvia and Lithuania are spending less than 1 percent, though both have indicated they intend to ratchet up to 2 percent by 2020

But it will be a decade before the full impact of this modernization is felt in the field, he said.

The plan NATO has agreed on — to set up forward supply bases on the alliance’s eastern front in which 4,000 or so troops could be deployed within 48 hours — might be useful in combating a small, stealth insurgency, like the masked gunmen who arrived in Ukraine to set off that crisis, but would be useless in the face of an invasion. “What is required is to be able to hold off any aggression for at least a couple of weeks, to buy some time and provide some sort of sanctuary for reinforcements”

In recent years, Russia has massed tens of thousands of troops for exercises just across their borders.

When the Baltic states entered NATO a decade ago, they were urged not to spend their limited resources on building large standing armies, but to depend on others in the alliance to come to their aid in an emergency. Instead, the Baltic countries and other former Soviet satellite states focused their military spending on building specialties that they could offer the alliance, such as Estonia’s focus on cybersecurity