Penny wise pound foolish

Today's stock market losses follow this weekend's disappointing European summit where political leaders were unable to reach an agreement on a solid emergency rescue package for Europe's troubled banks. Something comparable to the Paulson plan which could have given even more consistency to what was signed in the US Congress this past Friday.

According to Bloomberg data, since the beginning of this crisis worldwide banks have written off more than €400 billion in bad assets and have raised additional capital in excess of €300 billion. European banks have contributed roughly 40% of these amounts. And their U.S. counterparts have taken responsability for the remaining difference. But now it seems that the banking system has reached its limit regarding its capability to stem the crisis.

Therefore, if the U.S. is contributing $700 billion (equal to €520 at today's EUR/USD cross), Europe should be contributing at least €350 billion. That is what I would call global coordination. It would provide another degree of consistency to the Paulson plan. And it would do a lot more for the Euro's integrity compared to what the European single currency might face if this financial crisis escalates beyond its current level.