3 things Europe could learn from the Yanks

NEW YORK (MarketWatch) � If you think the U.S. banks walked all over Washington and taxpayers in the bailouts, try the European shoe on for size.

After underwriting, selling, hoarding and collecting fees on billions in European sovereign debt, suddenly these institutions are playing the victim.

They say the haircuts they�re being forced to accept will undermine their ability to lend.

Reuters Greek leaders meet to discuss terms of debt relief package with banks and private investors.

They�re demanding nearly bankrupt nations accept wage concessions and help fund big bank bailouts.

And, of course, they�re whining about new capital rules aimed at saving the banks from themselves and their own mismanagement.

All of these complaints are part of a strategy. Bankers want to scare the bejeezus out of European leaders, businesses and people. If the banks go under, so will Europe, the European Union, the currency and millions of jobs, goes the argument.

Well, they have a point. Just as the U.S. government was forced to make an ugly choice a few years ago to bail out the mega banks, so European officials are faced with the prospect of massive bank runs and failures.

But there are lessons to be learned from the U.S. bailouts, too. And European politicians should take a hard look at what worked and what didn�t for us Yanks.

First, if taxpayer cash will be used to recapitalize the banks, let those taxpayers have voting shares in the banks. As of Monday this was a sticking point in Greece where some political parties are demanding bank control in any bailout. Given that Greece�s government workers will have to accept pay cuts to help the banks, it�s only fair. Read full story on Greece�s efforts to win voting shares in banks.

Click to Play Greek bailout deal might not be enough

The various parties in the discussions between the Greek government and private sector investors over potential haircuts are edging closer to a deal. Dow Jones's Jenny Paris and Costas Paris discuss whether this will be enough to prevent a bailout.

Second, don�t allow short cuts on capital requirements. Banks are pushing for securities backed by credit card, auto loan and other risky debts to be used to meet capital requirements by the Basel Committee on Banking Supervision.

Holding asset-backed securities that could quickly turn sour in that fallback position doesn�t seem to bother the industry. The head of Pimco�s European credit research team told eFinancialNews that, regulators� view of what constitutes safety is colored by the fact that it was drafted in 2008, in the aftermath of what was primarily an asset-backed security crisis. See full story on ABS-European debate.

Are we missing something here? Isn�t that exactly why ABS shouldn�t be included in capital buffers?

Finally, Europe should not repeat the most critical mistake made in the U.S. bank bailout: equal disbursement of the pain. If state workers are going to pay with their jobs, wages, benefits and pensions, and if troubled countries are going to pay with damaged economies, banks and bank officials will have to share in damage.

After the U.S. taxpayers bailed out Bank of America Corp. BAC �and Citigroup Inc.C �with extraordinary measures, those banks were accused of fraudulent foreclosure practices, and the industry was charged with ignoring government requests to modify loans for troubled borrowers.

Bankers will argue, of course, that they are essential to the system, but so are teachers and librarians. If they�re going to take wage cuts, banker pay should be cut too. And private investors? They should know the game by now, 25 cents on the euro is better than no value from a lost investment.

Again, Europe faces some dirty business. Banks are in deep and the contagion factor is huge. The ties of at-risk European debt loom large. Big banks such as UniCredit UNCFF ,�Banco Santander � and Commerzbank DE:CBK �have been rushing to raise cash.

As of June 30, French and German banks had $90.7 billion in exposure to Greece�s sovereign debt. To make matters worse, Italian and Portuguese banks had a combined $11.4 billion in exposure, according to the Bank for International Settlements.

Of Portuguese debt, Spain had nearly $85 billion in bank and nonbank exposure. Germany had close to $40 billion in exposure, and France nearly $30 billion, according to the BIS.

What�s more, Germany held $180 billion in Spanish debt, while France had $140 billion. Even the U.S. had close to $50 billion in exposure, with $19.5 billion of that on bank balance sheets.

That�s why the final agreement between Greece, financial institutions and investors is so important. It�s also why negotiators need to stand firm. An agreement in Greece will set a template for Portugal, Italy and Spain, should the crisis spread.

If governments play tough, they�ll still pay the price from angry voters. But if they give in to slap-on-the-wrist writedowns and meaningless regulation, they�ll lose more than their votes, they�ll lose their countries.