Good summary from Ezra Klein in the Washington Post: Europe is caught in a long bout of something that we're very used to seeing after financial crises: extend and pretend. The underlying reality of their dilemma is that there are hundreds of billions -- or maybe more -- in losses for someone to take. If Greece and Ireland and Portugal take them, that means default and likely exit from the Euro. If they default, that means defaulting, in large part, on loans owed to German and French banks, which could cause a banking crisis in those countries. For them not to default, however, means that taxpayers in other European countries have to take those losses.
The solutions to this crisis that are economically plausible are not politically plausible, and vice-versa. As economist Carmen Reinhart told me, "If the policymakers were to be proactive, they would restructure Greek debt alongside bank recapitalization and at the same time, restructure both Portugal and Ireland as well." That is to say, they would do it all at once. But the sticker shock to that strategy would be enormous.
What is proving politically plausible is to do just enough to survive the week, and do it in the nick of time. We've seen that over and over again in this crisis. But the irony of this strategy is that it's likely making a resolution harder. The longer Europe spends under this cloud, the harder it is for them to grow. The harder it is for them to grow, the worse these debts become. And the worse these debts become, the harder they are to pay off. The cost of denying the problem is to make the problem worse. But for Europe's leaders, that is, at least for now, an easier price to pay. Actually fixing the problem might ultimately be cheaper, but it requires a wealth of political capital and continental unity that they simply don't have.