It was Sir Mervyn King, Governor of the Bank of England, who put it best. The sovereign debt crises affecting so many of the eurozone nations are not of liquidity but of solvency.
Think of a billionaire who happens to forget his wallet down the pub, cannot pay for his round and has to borrow £20 from a friend. He is solvent – he has plenty of money in the bank to pay his bills – but has a temporary liquidity crisis. Contrast that with the flash guy in the wine bar, buying everyone a pint but who goes home to stacks of unpayable bills. He is liquid, for now, but insolvent.
The Greeks, Irish, Portuguese and maybe the Italians and Spanish are like our flash friend. Their debts are unsustainable. The least bad way out of this is not for their mates in the eurozone to lend them more cash, but to honour their debts. A whip round, in other words. Taken as a whole the debts and deficits of the eurozone are not that bad, and compare relatively well with the US and Japan, for example. It would mean that the Germans, Austrians, Finns and Dutch – the boozers who always stand their rounds – would pay for someone else's party.
It is unfair. It is a true test of European friendship. It should end like a good night out. Then again, it might just start a bar-room brawl...