I thought we got this under control a couple of years ago:

Sounding a stark warning to stronger European countries such as Britain and Germany, the new IMF chief (Christine Lagarde) said: “We could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis.”

To reduce these risks, she called for “substantial” and mandatory recapitalisation to bolster European banks’ balance sheets, which will be “key to cutting the chains of contagion”.

Ms Lagarde, who was speaking at the US Federal Reserve’s annual forum at Jackson Hole, said the recapitalisation should first be financed through private channels, but could also be sourced from a Europe-wide bail-out fund.

A couple of thoughts:

• If you were on the trading desk of a dollar based financial intermediary with significant exposure to European banks what would you do at the opening tomorrow? Anyone for the nearest foxhole, perhaps. Lagarde may have lit the fuse connected to the pile of dynamite.
• Should the Europeans embark on another bank stress test? Just being snarky.
• The technocrats seem hell bent on imposing fiscal union on the EU. Maybe they know that’s the only way to save the thing. At any rate if successful, it will represent a victory of technocracy over democracy as none of the citizens of the member countries ever signed up for what appears to be the solution.

This could get out of control quickly.