Europe continues to bumble from one band aid to the next, andcontinues to just add more and more debt on already weak countriesand weak banks. Whether it is loans to sovereigns, or the ECBloaning liquidity lines to banks, it is still debt which musteventually be serviced and potentially reduced, if not repaid. Thatdebt service drains available capital from the banking system whichcould otherwise be available for lending. It strains fiscalinitiatives that might come from governments to prime the pump.Combine that with some higher taxes and there is no way Europe isever going to grow its way out of the mess. The banks have beenforced to compound the problem by using the ECB liquidity lines tobuy the sovereign debt of the mother countries in order to try tokeep the cost of capital somewhat manageable for the sovereign.This cannot continue much longer. It is purely a cycle of debt ondebt which can only end in collapse.

In a bankruptcy the solutions are a cram down of the debt, astretching out of the payments, and more equity. It is not addingdebt to debt and nothing more. DIP financing is purely a stop gapto the above steps. Often the other major step is a change inmanagement and a shrinking of the business by selling off lines ofbusiness and assets to generate cash and reduce losses of cash.

Europe needs to same thing. The principles are no different.Thus far we have had positive change in management in Greece,Italy, Spain, Ireland and the ECB. Most of the new top managers ofthese countries are technocrats or have a much better understandingof the economic issues. The change in France was a negativewith the lowering of retirement ages, and the increase in hiring ofmore government employees. The exact opposite of what was needed.Hollande is a bumbling socialist pandering to the unions and not atechnocrat.