Every day, the situation in Europe gets closer to what many analysts see as the inevitable conclusion: Weak countries like Greece default on their debts, triggering a chain reaction that hammers banks, bondholders, and other counter-parties, requiring the rest of the world to absorb the blow.
However, despite growing evidence that Greece will never be able to repay its debts, Europe's leaders continue to offer only temporary solutions--mostly bailouts that come with conditions that everyone knows will never be met.
The only permanent solution here, most analysts agree, is to restructure the debts of the weaker European countries, and then deal with all the consequences that will flow from that.
One consequence will likely be the need for many European banks to be recapitalized. Late last week, Germany began discussing the possibility of bailing out its banks if and when this becomes necessary, but as yet the rest of Europe's leaders have remained silent (or in denial) about this issue.
Longer term, the Euro-zone leaders will have to figure out a way to head off such crises in the future. The options include 1) dissolving the Euro-zone and going back to individual country currencies, which most analysts agree would be a nightmare, and 2) bringing the countries into a tighter "fiscal union," in which taxpayers in the rich countries agree to pay for debts and deficits incurred by poorer countries. The latter solution will also be extremely challenging to pull off, as citizens of Germany are revolted by the idea of, say, paying for Greece.
Either way, none of these solutions are currently on the table. Right now, Europe's leaders continue to mumble positive noises and hope the crisis will just go away.