Worse Than Wall Street How shaky European banks could tip the world back into recession.

Europe’s leaders have a simple explanation for the current financial crisis on their continent: greedy Wall Street hedge funds caused it. Rapacious investors made wild bets on Greek debt, the argument goes, which drove up borrowing costs and made the crisis seem even worse than it was. That bad behavior pummeled the euro. To hear EU leaders tell it, they have since fought off the barbarians with a $1 trillion bailout, saved the euro, and even ensured “peace on the continent,” as French President Nicolas Sarkozy boasted.

But Europe’s problems are far from over. Just hours after the bailout, the euro continued its slide, falling from $1.28 per euro to $1.19, before clawing its way back to $1.26. More worrying, European banks have cut back on their lending to each other—just as they did during the 2008 financial crisis—and are dependent on some $900 billion in emergency financing from the European Central Bank. Conditions in Europe today look a lot like those at the start of America’s subprime troubles in 2007, warned a recent Bank for International Settlements report. (more)