Euronomics

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It's been hard to ignore the European debt problems lately. Greece has had its share of troubles. Real estate loan defaults appear to be crippling a few Spanish banks, and the IMF has advised that Spain's banking sector needs to consolidate quickly to provide a more solid backstop against defaults.

These problems are giving rise to a new approach to economic governance - Euronomics.

Many banks have begun to pull back on their lending, and the London Interbank Offer Rate, or LIBOR has jumped to 0.538 percent - the highest since July of 2009. LIBOR is the rate at which banks borrow unsecured funds from other banks. And a rising rate indicates tightening of money supply, and greater stress on the world's financial system.

This is reminiscent of the scramble here in the U.S. to have weak financial institutions like Merrill Lynch and Countrywide absorbed by stronger companies.

Those looking for a quick and clean exit to the Euro woes should remember that while consolidation in the U.S. helped mitigate some of the potential impact of the financial crisis, it wasn't a smooth road. Even the strong banks eventually required billions in bailout money to keep them afloat.

To some degree, history is repeating itself in Spain.

***But naturally, there are differences. Spain's economy is much smaller than that of the U.S, and far less intertwined with the world economy. And the bailout and consolidation of four Spanish banks is expected to cost only 35 billion euros. This is small compared to the U.S. bailout, but still significant given Spain's size.

Two years ago, Spain was creating jobs at the fastest rate of any country in the EU. Now, it has the highest unemployment, at 20%. Just like in the U.S. the consumer spending and construction boom was short-lived.

It seems clear to me that the EU needs to move quickly to help Spain and provide liquidity for its ailing financial sector. The EU moved far too slowly on the Greek situation. This is yet another opportunity for the EU to make a show of unity and strength. After it made a big show announcing the $1 trillion bailout to support the euro, it better step in quickly, and without any quibbling.

Of course, even if the EU responds quickly, the bigger question of debt around the globe will remain.

***So how does this affect the U.S. economy and stock market? After all, the U.S. is well ahead of Europe in terms of getting its financial sector on its feet. We've seen weakness over the last couple of weeks in the U.S. stock market. But I don't expect stocks to get completely washed out. And I don't expect our economic recovery to get derailed either.

If you'd like more perspective on how investors should approach the European debt crisis, I invite you to join me on Thursday June 4, at 6 pm for a special video investment conference called Profiting from Crisis in Europe.

Investors must be ready to act when volatility dominates the stock market. During this special Internet event, Profiting from Crisis in Europe, I'll discuss how you can use the volatility we're seeing right now to position yourself for market-beating gains in the years to come.

Profiting from Crisis in Europe is free to attend, and you can sign up for this critical event by clicking here.