In each case, the rating agencies played an important and conspiratorial role in labeling many CDO securities andmost sovereign credits as AAA. This is important because banks in Europe are now able to hold such AAAsecurities on their balance sheets with little to no capital reserves held against them. In essence, this means thatthe banks can hold these AAA assets with infinite leverage. And that is pretty much what they've done: theleverage of these European banks sometimes exceeds 35- or 40-to-1.So in both the subprime crisis and now the sovereign debt crisis, the banks loaned too much money to inferiordebtors with too much bank leverage based solely on the opinion of a rating agency. Clearly, the bank that over-lent was more at fault than either the homeowner or the borrowing country. In both cases, the homeowner andthe government of the sovereign nation may have done stupid things with the money, but the real stupidity wasthe banks lending in the first place. Clearly, if anyone should be blamed for these crises, it's the banks that over-lent -- and therefore it is the banks that should suffer most of the pain in restructuring. If I were advising Greece, Iwould tell it to default on its debts and force its creditors to take an 85 percent haircut. This would put the truecost of the crisis on those most responsible -- the banks, not the people of Greece.If you want to predict which countries of Europe face possible default risk in the future, it's not enough to just lookat current levels of government debt. I have created a forecast of how bad things might get for the countries of Europe by looking at a hypothetical future in which the governments are forced to make their own banks whole onlosses equal to 10 percent of total bank assets by country. This might seem like an extreme loss scenario untilyou realize that Citibank has already been made whole on 15 percent of its assets by guarantees from the U.S.government and that people are expecting Fannie Mae and Freddie Mac to realize losses of more than 20 percentof their total assets before their restructuring is complete.In addition, I assumed very little real growth for these countries in the future, which is reasonable because theyhave to deal with this banking and government crisis and because their citizens are aging rapidly and they arelosing valuable members of their labor force to retirement. To account for increases in future debt loads due toongoing government deficits, I took each country's current annual deficit, multiplied by seven, and added it to thecountry's total debt. The following table is an estimate of how bad things might get in the near future for thecountries that end up with more than 100 percent of their GDP in government debt under this formulation.Possible future government debt loads as a percentage of GDP with 10 percent bank asset losses assumedLuxembourg 287 Japan 262Greece 215Ireland 210Belgium 201United Kingdom 188Italy 169France 164Iceland 162Portugal 150Denmark 146Netherlands 145Austria 142United States 136India 133Spain 120Switzerland 114Germany 108Sweden 104Finland 103It is apparent that Greece, Ireland, Italy and Portugal are all troubled and face real default risks. Spain, less so.But it is also apparent that some of the largest countries of the world will also face very severe consequences intrying to repair their banks' balance sheets. I don't see how Japan can escape this fate given that its debt, seenhere, will be close to triple the size of its GDP. Similarly, Luxembourg, the United Kingdom, France, Iceland,Denmark, the Netherlands, Austria and the United States are at severe risk of getting into financial trouble as adirect result of these banking crises.In 2008, I wrote a book titled "Contagion," in which I warned that the subprime mortgage crisis that started in theU.S. would spread to prime mortgages, infect the financial stability of the largest city and state governments inthe U.S., and eventually spread to impact most of the nations of the world, especially in Europe. This latestsovereign debt crisis adds fuel to that fire. The solution cannot continue to be the bailouts of banks at 100 centson the dollar at the expense of taxpayers and citizens. A debt crisis cannot be solved with more debt. We mustfind a way to reduce the debt levels of all banks, corporations, citizens and countries so that we are better poisedfor real growth and prosperity in the future.