So we are now entering the dangerous phase of the crisis with Italian bond yields reaching unsustainable levels. If I recall correctly, the UK is estimated as being exposed (via banks, etc) to the tune of ca. Euro 70 billion plus and France is exposed to the tune of a massive ca. Euro 440 billion. France's ability to raise funds cheaply will start to suffer. It seems that the Euro-politicians have now let things drift too far and things will now get very dangerous as I don't think they have the will or fire-power to stop the contagion.

So, is their an "easy" way out? It seems to me that if investors are unwilling to put their money into European soverign bonds one way out is a massive increase in tax take (ie take investors money if they won't offer it). However, that won't work on a country by country or even Eurozone wide basis - it'd just make those countries even more uncompetitive and poor. So, we need a Gordon Brown figure to get worldwide consensus on "recapitalising" nations. My suggestion is a worldwide agreement to levy and channel into a World Emergency Fund a one-off capital tax. I would start with a gentle 30% charge on gross assets held in designated tax havens (that would attack the megarich, the tax avoiding big businesses, large scale organised crime and corrupt developing world politicians!). Tax could be levied on assets held on say 1 December with a special 75% withholding tax on withdrawls in the interim. As a further anti-avoidance measure any one found to have avoided the levy can be arrested and tried in any jurisdiction in which they travel - that would put the wind-up the internationally mobile megarich and oligarchs or at least confine them to their homes, where they wield their power.

I'm sure the world would not agree to such a scheme and it would be hard to impose but I reckon it would do the trick!

Oh, and the EZ should be broken up in an ordetly fashion asap rather than waiting for reality to cause a disaster.

I suspect the Germans and the Chinese will find enough dosh from the back of the sofa to get lots richer at the expense of the bed wetters.

I don't think the Germans alone will (or could if things get bad). What really irks me about Europe's politicians is that they are unwilling to stand on their own feet, they seem to expect some fairy godmother, like the US, or now China to bail them out. 60 odd years of been looked after.

It will be up to China. Not sure they will though. They will probably take their chances that they can do well out of global conflict - by expanding their sphere of influence in Asia. Russians too could do well whilst Europe is diverted. Can't the US having the will or funds to come to Europe's aid again.

Time for the Germans to stop being so damn precious about the ECB.

But, the underlying issues will not readily resolve. So, they would end up creating rampant inflation. We know where that ended in the '30s. I think they are right to be cautious. They need to break up the EZ to protect themselves and others.

Just out of curiosity, if Greece and/or Italy do drop out, what are they going to use for currency in the short term?

That's why it needs to be planned. t's been done recently - upon the break up of the USSR - without catastrophe. We need a twin approach - sort out the short term mess by "doing what it takes" whilst at the same time planning for the earliest break-up of the EZ (ie the PIIGS need to get out and maybe others).

Sweeties, that's what they used in the past. You'd go into an Italian shop, buy a packet of fags and instead of coins, they'd give you a handfull of sweeties as your change

China does not want global conflict. It is not a zero sum game whereby if the USA and Europe tears itself apart China can 'take advantage'. The vehicle for Chinese development is the market it has in the USA and Europe. That's where it runs its large trade surpluses to, thats where it earns its revenues from, thats where it accumulates assets that it needs to keep in good shape. The worse things get for the USA and Europe the more Chinese development grinds to a halt.

China is in a similar (but less marked) position to Germany in that it doesn't want to get involved bailing out countries it will see as profligate but will see that without some form of support it is going to see its main markets dry up.

True enough, but I was thinking of a more practical solution.

Maybe now is the time to roll out electronic banking at the expense of traditional money in these nations - no matter what you call the currency, the swipe card isn't going to care, is it?

Sorry, I don't understand what you mean.

i think he means that as the banks have proved that they are 100% secure as custodians of your dosh, we can abolish all forms of cash, because your funds are perfectly safe with stalwarts like Lehmann Brothers, whose plastic works at cashpoints even to this day (I think)

If E1 = £1.15 = $1.27 (or whatever todays trading rates are), your electronic fund transfer systems aren't going to care. In todays world you no longer need to carry travellers cheques as your bit of plastic works in whatever currency you're dealing with at that time.

It's not a huge leap from there to suggest that everyone on Greece is issued a plastic card and that they use that for money. OK, so there will obviously be holes in that idea - I can think if half a dozen exceptions offhand - but the potential is there.

Bugger that, it'd mean I'd have to buy my sweeties instead of getting them for free

Find some local magic marker company to supply pens and set the unemployed to work crossing out Euro symbols in favour of something suitably Greek.

I like your idea but it doesn't scale to Italy. If they suddenly switch to the Lira there's no way even 64-bit ATM machines can handle that many zeroes.

That's the easy bit.
You'd still need a currency that was theirs, it was using someone else's that got them into this mess.