LOS ANGELES, CA (Catholic Online) - "The system ... is the Spanish government bails out Spanish banks, and Spanish banks bail out the Spanish government," Stiglitz said.

The current plan is to lend Spain up to 100 billion euros, the equivalent of $125 billion U.S. dollars, agreed on over the weekend by euro zone finance ministers. The amount was far higher than most estimates of the needs of Spanish banks. The nation has seen the bursting of the real estate bubble, recession and mass unemployment.

The bailout would also add another 10 percent to Spain's debt-to-gross domestic product ratio, which was already expected to hit nearly 80 percent at the end of 2012. This could make it more difficult and expensive for the government to sell bonds to international investors.

In Spain, the real risk is that the government may have to ask for help from the same institutions that it is now planning to help.

"Its voodoo economics," Stiglitz said prior to the announcement of the bailout over the weekend. "It is not going to work and it's not working."

In the opinion of Stiglitz, Europe should prioritize discussion of a common banking system, he said. "There is no way in which when an economy goes into a downturn it will be able to sustain policies that will restore growth without a form of European system."

A former economic advisor to U.S. President Bill Clinton, Stiglitz is harshly critical of austerity packages. He also authored a book attacking the International Monetary Fund for policies it has imposed on developing countries as a precondition for emergency loans. Austerity measures intended to restore risk have the effect of reducing growth and increasing debt, he said.

"Having firewalls when you're pouring kerosene on the fire is not going to work. You have to actually face the underlying problem, and that is, you're going to have to promote growth," Stiglitz said.

Widespread reforms to make Europe more of a fiscal union are needed to solve the debt crisis, reinforce the single currency and ultimately help Germany which, as the richest country in the union, will have to bear the highest cost of guaranteeing any commonly issued debt and providing more resources to boost public spending.

"Germany keeps saying that the strengthening is fiscal discipline, but that is a totally wrong diagnosis," Stiglitz said.

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