As London bakes in the August heat, bond yields in Italy and Spain are fast approaching the 7% trigger for a Summer melt down of the Euro; 7% was the bail-out level for Greece, Ireland and Portugal. The problem is, there's just not enough money in reserve in the entire Eurozone to bail-out Spain and Italy.
There are only three ways to get rid of debt; pay it down, default or inflate it away. Paying it off takes money out of the real economy, slows growth, costs jobs and has a high human cost. Inflating it away is only painless if earnings rise with prices - which isn't happening. The sensible option - to let the banks holding the junk fail, collapse and disappear, taking all their worthless derivatives with them, seems beyond the ken of our weak as dishwater dribbly political class. So as the banks get incrementally healthier we've exchanged a bank debt crisis for a sovereign debt crisis; the blood donor is collapsing from anemia. Insanity.
Greeks know all about starvation. When the Germans took the country's food production, over 300,000 died of starvation in Athens alone; today they're queuing at the food kitchens again to stay alive. Whilst Britain's banks distributed a bonus pot of £14 billion last year. Insanity.