Mrs. [Angela] Merkel, 57, faces far-reaching decisions about how to deal definitively with the debt crisis in Europe and, more immediately, whether to allow Greece to default or even to leave the currency union. American officials fear that if she does not act more decisively, bank lending could freeze up and the result would be another sharp financial downturn on both sides of the Atlantic.

Fears of a worsening debt crisis slammed European stocks on Monday, especially shares of French banks, forcing the French government to declare its support for its three largest financial institutions. The turmoil added to worries that the Greek crisis would prove difficult to contain without more robust action from Germany and, ultimately, its taxpayers.

The project of European integration, which began in the difficult years after World War II, is also on the line. If Greece were forced to abandon the euro, as more and more voices on the German right are demanding, it would be a jarring setback for solidarity on the Continent.

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Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.

And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.

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“Evangelical Catholicism” is a term being used to capture the Catholic version of a 21st century politics of identity, reflecting the long-term historical transition in the West from Christianity as a culture-shaping majority to Christianity as a subculture, albeit a large and influential one. I define Evangelical Catholicism in terms of three pillars:

–A strong defense of traditional Catholic identity, meaning attachment to classic markers of Catholic thought (doctrinal orthodoxy) and Catholic practice (liturgical tradition, devotional life, and authority).
–Robust public proclamation of Catholic teaching, with the accent on Catholicism’s mission ad extra, transforming the culture in light of the Gospel, rather than ad intra, on internal church reform.
–Faith seen as a matter of personal choice rather than cultural inheritance, which among other things implies that in a highly secular culture, Catholic identity can never be taken for granted. It always has to be proven, defended, and made manifest.

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His first words to them after a welcoming address by the Archbishop of Madrid, Cardinal Ruoco Varela, were “I hope you were able to sleep a little last night”, to the young people’s applause. Then with the procession of bishops and priests to the sweeping white stage, upon which a simple altar was shaded by the outstretched branches of an artificial golden tree, the closing ceremony of this week of prayer, song, meditation and encounter begun.

“We cannot encounter Christ and not want to make him known to others.” Pope Benedict told them in his homily. “So do not keep Christ to yourselves!”. The entire homily was drawn from the Sunday Gospel, Mathew 16, from Christ’s question to the apostles: “But who do you say that I am?”.

“Faith is more than just empirical or historical facts; it is an ability to grasp the mystery of Christ’s person in all its depth”, he said. And then looking out on the horizon of young men and women, religious and lay, that extended before his gaze, the Pope said to them , “today Christ is asking you the same question”. “Respond to him with generosity and courage, as befits young hearts like your own”.

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Greeted by hundreds of thousands of euphoric young Catholics gathered in the city to celebrate World Youth Day the Pontiff chose to highlight the difficulties facing young people in his first address of the four-day visit.

“Many young people look worriedly to the future, as they search for work, or because they have lost their job or because the one they have is precarious or uncertain,” he said in a speech delivered in Spanish.

He arrived in recession-hit Spain ”“ where unemployment is 20 per cent rising to above 40 per cent in the under 25s ”“ with a thinly veiled attack on financial institutions.

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If the experience of previous ECB interventions is anything to go by it is only a matter of time until we see larger-scale ECB operations, potentially accompanied by a European Financial Stability Facility (and later European Stability Mechanism) bailout. This is how it happened in the cases of Ireland and Portugal. ECB measures have always been announced as ways to prevent further, more costly rescue packages. The strategy never worked because in the end we got both. It won’t work this time, either.

It is remarkable how far the ECB has now moved from its initial Bundesbank-like philosophy of independence and monetary stability. These were not just soap-box oratories but supposedly law. The EU Treaty defines the ECB’s role very clearly: “The primary objective of the European System of Central Banks [the ECB and eurozone central banks] shall be to maintain price stability.” And the ECB “shall be independent in the exercise of its powers and in the management of its finances. Union institutions, bodies, offices and agencies and the governments of the Member States shall respect that independence.” If only!

Maybe the ECB somehow manages to conform to the letter of the law. It certainly doesn’t to its spirit….

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A half-hearted approach by the EBC will achieve little. Even full-blown “shock and awe” will only buy time. That’s because the real instability stems from fears euro-zone governments will impose losses on those holding individual country bonds if debts prove unsustainable. Those fears are mounting as the growth outlook deteriorates. Italy’s announcement of new austerity measures Friday may help address concerns over the deficit but could actually worsen the short-term challenge of growth.

That’s why the second part of the crisis resolution requires a vast expansion of the euro zone’s bailout facilities and most likely a move by European countries to guarantee European Financial Stability Facility’s bonds, effectively turning them into genuine euro-zone bonds.

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Professor Willem Buiter, Citigroup’s chief economist, said the apparent ECB action was pointless. “The warped logic of intervening in two countries that don’t need it is as strange as it gets.”

Mr Buiter said Europe risks a disastrous chain of events and the worst financial collapse since the onset of the Great Depression unless Europe’s central bank steps in with sufficient muscle to back-stop the system.

“The ECB has yet so show it understands that it is the only institution that can save Italy and Spain from fundamentally unwarranted defaults. Everybody is afraid and real money investors are dumping their holdings. The ECB must step in to cap the yields at 6pc or 6.5pc and put a floor under the market,” he said.

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Mohamed El-Erian, chief executive of the bond giant Pimco, said investors were selling risky assets like stocks “globally prompted by concerns about the weakening economic outlook, spreading contagion in Europe and insufficient policy responses.”

With Thursday’s dive, the three major American indexes had erased all of the gains made so far in 2011, with the S.&P. and Nasdaq markedly below the start of the year.

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Debt-laden Italy is likely to default, but Spain might just avoid it, according to the British think tank, the Centre for Economics and Business Research.

With the countries weighed down by debt, the think tank modelled “good” and “bad” economic scenarios for both.

It found that Italy will not avoid default unless it sees an unlikely big jump in economic growth.

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…another type of contagion is causing concern: the risk of problems spreading to big banks, especially in Italy and Spain.

The growing vulnerability of the giant banks in these two countries is spurring investor fears that Europe’s latest bid to get a handle on its festering debt crisis, adopted just a few weeks ago, has come up short.

The banks own so many bonds issued by their home countries that they are being weakened as the value of those bonds falls, amid concerns that the cost of government borrowing could become too expensive for Italy and Spain to bear.

Now there are signs that these concerns are, in turn, making it harder and costlier for the banks to borrow money to finance their day-to-day operations, a troubling trend that, at the worst, could lead to liquidity problems.

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Investors continued to flee Italian and Spanish bonds Tuesday amid renewed concerns about the ability of Rome and Madrid to regain control of their finances in the face of sluggish growth and weakened administrations.

The Italian economy minister, Giulio Tremonti, called a meeting of the country’s financial authorities Tuesday to discuss the recent market turmoil, Reuters reported, citing an unidentified official. The Italian Treasury did not respond to calls seeking comment.

In Madrid, meanwhile, Prime Minister José Luis Rodríguez Zapatero delayed the start of a planned vacation to the southern region of Andalucia. Reuters quoted the secretary of state for communications as saying the prime minister wanted to “more closely monitor the evolution of the economic indicators.”

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Behind the paralysis in Washington and prevarication in Berlin lies a troubling thought. Political systems in thrall to 24-hour rolling news have lost the capacity to make difficult choices. Globalisation imposes wrenching change and simultaneously saps the ability of governments to adapt. Politicians find it easier to argue about taxing the rich or cutting Medicare and about central bank bond purchases versus default than to confront the consequences for western societies of the profound upheaval in the global economy.

So it is tempting to say all is lost ”“ that a political and economic model built on western primacy is cracking under the strain of the shifting balance of international advantage. The American dream and European welfare state are bending to the competitive winds of globalisation.

Tempting but premature. It is too early to despair. What makes the crises in Washington and Europe so infuriating is the fact that, for all they demand hard decisions, they are susceptible to political solution. The missing ingredient is leadership.

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Five years ago, I was among those who argued that the probability of a collapse of the eurozone was close to zero. Last year, I wrote it was no longer trivial, but small. The odds have risen steadily since, not because of the crisis itself, but the political response. I now would put the odds of a break-up of the eurozone at 50:50. This is not because I doubt the pledge by the European Council to do whatever it takes to save the euro but because I fear it has left things too late. The council may be willing but it will not be able to deliver. As I argued last week, a eurozone bond is the only solution to the crisis. But this gets progressively more expensive, and politically less realistic, once bond spreads of large countries widen.

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The European debt crisis has entered “uncharted territory,” rekindling concern it will spread eastward through banking and trade links, according to the European Bank for Reconstruction and Development.

Italy’s Unicredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), two of eastern Europe’s biggest lenders, fell to the lowest in more than two years July 11 as political infighting threatened to delay efforts to cut the budget deficit in the country with Europe’s largest debt burden. European leaders this week failed to agree on a new aid package for Greece.

“We are in uncharted territory,” Erik Berglof, chief economist at the London-based EBRD, which invests in eastern Europe and Central Asia, said in a July 12 interview. “The source of the contagion seems to be in worse shape.”

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European Council President Herman Van Rompuy has called an emergency meeting of top officials dealing with the euro zone debt crisis for Monday morning, reflecting concern that the crisis could spread to Italy, the region’s third largest economy.

European Central Bank President Jean-Claude Trichet will attend the meeting along with Jean-Claude Juncker, chairman of the region’s finance ministers, European Commission President Jose Manuel Barroso and Olli Rehn, the economic and monetary affairs commissioner, three official sources told Reuters.

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The reason a currency union needs a political union is simple. The centre has to have some way of stopping parts of the union from borrowing too much in the common currency at the common interest rate. If some borrow too much they are free riders on the backs of the more prudent areas.

If they go on borrowing too much they undermine the credit rating of the whole area, and force up the cost of borrowing for the prudent parts. To achieve discipline, the centre also needs to send subsidies and payments to the poorer parts, to compensate them for their inability to devalue to price themselves back into a competitive position.

Today the single currency system is suffering from the double stresses of too much borrowing by countries such as Greece and Portugal, who have spent too much and raised too little in tax, and from the need of countries like Ireland to bail out their overstretched banking systems….

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The European Union seems to have adopted a new rule: if a plan is not working, stick to it….But their strategy of denial””refusing to accept that Greece cannot pay its debts””has become untenable…

An orderly restructuring [for which the Economist advocates] would be risky. Doing it now would crystallise losses for banks and taxpayers across Europe. Nor would it, by itself, right Greece. The country’s economy is in deep recession and it is running a primary budget deficit (ie, before interest payments). Even if Greece restructures its debt and embraces the reforms demanded by the EU and IMF, it will need outside support for some years. That is bound to bring more fiscal-policy control from Brussels, turning the euro zone into a more politically integrated club. Even if that need not mean a superstate with its own finance ministry, the EU’s leaders have not started to explain the likely ramifications of all this to voters. But at least Greece and the markets would have a plan with a chance of working.

No matter what fictions they concoct this week, the euro zone’s leaders will sooner or later face a choice between three options: massive transfers to Greece that would infuriate other Europeans; a disorderly default that destabilises markets and threatens the European project; or an orderly debt restructuring. This last option would entail a long period of external support for Greece, greater political union and a debate about the institutions Europe would then need. But it is the best way out for Greece and the euro. That option will not be available for much longer. Europe’s leaders must grab it while they can.

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Investors are withdrawing cash from money market funds heavily exposed to short-term debt issued by European banks out of fear that a Greek default could spark contagion across the region’s financial sector.

At the same time there is increasing reluctance among US banks to lend to their European counterparts in the past two weeks because of growing worries over Greece, according to brokers and bank traders.

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“We’re Man United, we do what we want,” sing their fans.

It is possible that Barcelona have their own anthem of a similar message. And if they do not, then they should get one. The Catalan magicians have confirmed their greatness by despatching Manchester United in untouchable style. Just as they did two years ago, England’s finest team were pulled apart, and an even harsher footballing lesson was received. They can offer no excuses, and did not offer them. To be beaten by a team of this quality will register as no disgrace once the pain has healed.

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…Here is something most people don’t know about Barcelona: Unlike every other famous soccer team in the world that thrives on possession and ball control, they do something unique during matches. They run as if their bikini briefs are on fire.

According to Stats Inc., which tracks the distance each player travels in a match, Barcelona’s players have covered 627,366 meters of turf during their six Champions League knockout-round matches, or about 390 miles. Its opponents, meanwhile, have run 611,120 meters or 380 miles, about 3% less, which is significant considering they are all chasing the same ball…

On its face, this makes absolutely no sense….[so how could it be true?]

The answer to the riddle is that for all the superlatives lobbed at Barcelona for its artistry with the ball, its central weapon, and perhaps its defining strength, is what happens when the other team does get its cleats on the ball….
The answer to the riddle is that for all the superlatives lobbed at Barcelona for its artistry with the ball, its central weapon, and perhaps its defining strength, is what happens when the other team does get its cleats on the ball….

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….for Mr. Jallow and for many others who arrived before them, often after days at sea without food or water, Europe has offered hardships they never imagined. These days Mr. Jallow survives on two meals a day, mostly a leaden paste made from flour and oil, which he stirs with a branch.

“It keeps the hunger away,” he said.

The authorities estimate that there are perhaps 10,000 immigrants living in the woods in the southern Spanish province of Andalusia, a region known for its crops of strawberries, raspberries and blueberries, and there are thousands more migrants in areas that produce olives, oranges and vegetables. Most of them have stories that echo Mr. Jallow’s.
From the road, their encampments look like igloos tucked among the trees. Up close, the squalor is clear. Piles of garbage and flies are everywhere. Old clothes, stiff from dirt and rain, hang from branches.

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Carlos Álvarez, spokesman of a Dignified Life campaign being promoted by the ethicists, noted a “lack of protection” for both patients and doctors who oppose a directly-induced death.
For example, the group pointed out weaknesses in regard to regulation wording on sedation, which is presented as a right.
“To exact it as a right and to oblige the doctor to prescribe it might endanger the patient’s life — given that there are cases in which sedation is counter-indicated — and, in any case, it obliges the professional to obey criteria that are foreign to professional ethics,” the organization noted.

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Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ said probably the most worrying development for the euro was the surge in Italian government bond yields in response to S&P’s move.

He said: “Italy has the largest government bond market in the eurozone and continued rising yields there over the coming weeks would have a very destabilising impact on the eurozone debt markets.

“With the authorities still seemingly divided over how to proceed with the debt crisis there remains considerable short-term risks for the euro.”

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“There are a lot of people getting up in the morning and going to work and not getting paid,” said Gayle Allard, a labor market expert at IE Business School in Madrid.

It’s a phenomenon seen in eastern Europe as well, with workers in countries like Serbia, Bosnia, and Croatia waiting months, in some cases years, for a paycheck from cash-strapped employers. But Spain is one of Europe’s richest countries, one with recent memories of a giddy economic boom ”” so the sight of workers toiling without pay will come as a deeper shock.

Experts say there’s no way to tell how many Spaniards are in such straits. But they say the number is significant and could rise after local elections this month, when debt-ravaged local governments are expected to reveal even bigger budget woes. Thousands of small and midsize companies that employ people like Garcia rely on these governments for contracting work.

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My goodness!

Portugal’s admission that it will probably need a financial bailout raises a question that will shape the outcome of the euro zone’s debt crisis: Is Spain next?

The cost of saving Spain, a €1.1 trillion ($1.56 trillion) economy, would dwarf previous bailouts and could test the financial strength of Europe as a whole.

But if Spain can continue to repair investors’ trust, as in recent weeks, then Europe stands a chance of containing the debt crisis to three countries, Greece, Ireland and Portugal, whose combined economies are half the size of Spain’s.

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Moody’s downgraded its credit rating on Spain Thursday, citing worries over the cost of the banking sector’s restructuring and the government’s ability to achieve its borrowing reduction targets.

The agency said it was reducing its rating by one notch to Aa2 and warned that a further downgrade could be in the offing if there are indications that Spain’s fiscal targets will be missed and if the public debt ratio increases more rapidly than currently expected, or if the funding requirements for the so-called savings banks””the cajas””are greater than anticipated.

Though noting the government’s resolve in dealing with its problems and that Spain’s debt sustainability is not under threat, Moody’s said that “Spain’s substantial funding requirements””not only those of the sovereign, but also those of the regional governments and the banks””make the country susceptible to further episodes of funding stress.”

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Brussels has called for sweeping powers for regulators to seize failing EU banks, sack board members, and impose haircuts on senior bank debt, aiming to ensure that taxpayers are never again held hostage by high finance.

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