But no one will bail out these super sovereigns if the sovereigns prove to be insolvent.

Similarly, super sovereigns cannot continue to bail out distressed sovereigns that are insolvent rather than illiquid.

When they couldn t pay, as sometimes happened, sovereigns defaulted.

Today, sovereigns are more often democratically elected governments, but they still borrow.

The resulting private sector imbalances culminated in banking problems that were eventually transferred to sovereigns.

And the same is true, albeit to a lesser degree, for other heavily indebted sovereigns.

And, in Europe, the sovereigns must address firmly their financing problems through credible fiscal consolidation.

There was good news in this summit Europe s leaders have finally understood that the bootstrap operation by which Europe lends money to the banks to save the sovereigns, and to the sovereigns to save the banks, will not work.

Fifth, some argued that highly indebted sovereigns would push investors into gold as government bonds became more risky.

Indeed, sovereigns are dumping a larger fraction of their public debt onto banks balance sheet, especially in the eurozone.

For sovereign bonds held by other sovereigns, the Paris Club of creditor countries has developed procedures for handling the debt.

Without a credible threat to cut off wayward sovereigns, the ECB s pledge provides a free lunch to investors and governments alike.

Until the beginning of the twentieth century, tsars knew no legal constraints, such as impeded the absolutism of West European sovereigns.

Thus, in addition to an orderly resolution regime for banks, Europe must also implement early orderly restructurings of distressed sovereigns public debt.

Before doing anything else, we must relieve some of the balance sheet pressures on sovereigns, households, and banks that risk smothering the recovery.

As investors reduce their exposure to the eurozone periphery s sovereigns, banks, and corporations, both flow and stock imbalances will need to be financed.

In any case, a rating change would hardly affect funding costs in the current low yield environment, as lower rated sovereigns have demonstrated.

Fifth, some argued that highly indebted sovereigns would push investors into gold as government bonds became more risky. But the opposite is happening now.

Then, distressed sovereigns that had already lost market access Greece and Ireland were bailed out by the International Monetary Fund and the European Union.

Nor does it account for the fact that giant companies are exploiting this largely unregulated environment to set themselves up as the new sovereigns.

One of the main problems today is too much debt in the global financial system among sovereigns, banks, and households, and especially among the advanced economies.

And, in Europe, the sovereigns must address firmly their financing problems through credible fiscal consolidation. In addition, to support growth, banks must have sufficient capital buffers.

Borrowing costs are rising for highly indebted sovereigns, credit rationing is undermining small and medium size companies, and falling commodity prices are reducing exporting countries income.

Official resources need to be tripled through a larger European Financial Stability Facility (EFSF), Eurobonds, or massive ECB action to avoid a disastrous run on these sovereigns.

The risks of an economic and financial crisis even worse than the previous one now involving not just the private sector, but also near insolvent sovereigns are significant.

It would be a different matter if we were to decide to buy bonds issued by euro area sovereigns the only market where size would generally not be an issue.

Public debt is already high, and many sovereigns are near distress, so governments ability to backstop their banks via more bailouts, guarantees, and ring fencing of questionable assets is severely constrained.

In the absence of an actual world government, this can be done only through cooperation among states. The fewer sovereigns there are, the easier it will be to secure the necessary cooperation.

In the absence of an actual world government, this can be done only through cooperation among states. The fewer sovereigns there are, the easier it will be to secure the necessary cooperation.

Meanwhile, the ability to backstop, ring fence, and bail out banks and other financial institutions is constrained by politics and near insolvent sovereigns inability to absorb additional losses from their banking systems.

Indeed, in contrast to the United States, eurozone authorities were slow to consolidate the banking system after the global financial crisis erupted in 2008, and failed to sever the ties between sovereigns and banks balance sheets.

According to Standard and Poor s, for example, The rating on EFSF reflects our view that guarantees by AAA rated sovereigns and freely available liquidity reserves invested in AAA securities will, between them, cover all of EFSF s liabilities.

As the bond market begins, finally, to price in greater relative risk in euro zone sovereigns, the intellectual underpinnings of the idea of a global division between emerging market and developed market bonds will be fundamentally tested.

The second objective should be to break the link between banks and sovereigns, which has been a particularly dangerous feature of the last year, while the third is to minimize the risks for taxpayers through adequate contributions by the financial industry.

Indeed, sufficient official financing will be needed to allow cross border and even domestic investors to exit. As investors reduce their exposure to the eurozone periphery s sovereigns, banks, and corporations, both flow and stock imbalances will need to be financed.

In a TED talk on July 12, 2011 in Edinburgh, Scotland she describes how the internet has become a primary communication channel between citizens and governments, but warns that there is a corporate layer of internet sovereigns between the two.

Others pretend to worry about the moral hazard implications of debt relief, despite the fact that the country s private sector debt has already been written off at EU insistence, and that there are dozens, if not hundreds, of precedents for restructuring the debts of insolvent sovereigns.

Thus, in addition to an orderly resolution regime for banks, Europe must also implement early orderly restructurings of distressed sovereigns public debt. Waiting until 2013 to implement these restructurings, as German Chancellor Angela Merkel proposes, will destroy confidence, as it implies a much larger haircut on residual private claims on sovereign borrowers.

Public debt is already high, and many sovereigns are near distress, so governments ability to backstop their banks via more bailouts, guarantees, and ring fencing of questionable assets is severely constrained. Another round of so called quantitative easing by monetary authorities may not occur as inflation is rising albeit slowly in most advanced economies.

The crisis started with too much private debt and leverage, which became public debt and deficits as crisis and recession triggered fiscal deterioration and private losses were mostly socialized via bailouts of financial systems. Then, distressed sovereigns that had already lost market access Greece and Ireland were bailed out by the International Monetary Fund and the European Union.