Stunning news from Western Europe today…

The government of Belgium has collapsed. For years now, the French and Dutch speaking citizens have been at odds concerning autonomy and local governance. Back in July, the government announced its resignation. Officials from several of the elected parties could not reach an agreement on how much separation should be between its French-speaking citizens (in Wallonia) and its Dutch-speaking citizens (in Flanders).

But since the global economic crisis, things have come quickly to a head. The government made a controversial move to bail out the belleaguered financial group, Fortis (FORB:Brussels) back in October 2008. It cost investors a lot of money and has lead to the unravelling of the entire government.

Today, the Belgian king accepted the resignation of the government. Yes, the entire government.

So what does this mean?

It means a new “coalition” will step in and deal with all the problems the old government couldn’t handle, from the down-and-dirty autonomy discussions to the immense financial problems that no one in the world can get a jump on. (Right now, anyway.)

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Last Tuesday, I told Taipan Publishing Group subscribers in Taipan Insider that one Middle Eastern country was injecting massive amounts of cash into international markets.

That’s not really news nowadays, though, is it? Everyone’s heard of the $7.5 billion Citigroup bailout by Abu Dhabi back in November 2007.

But things have noticably been slowing down. When billions of dollars worth of investments get halved in value in less than a year, it makes you think.

Yet for some regions, this credit crunch is an opportunity of a lifetime.

Think about it. You’re an oil-rich nation with foreign currency reserves well into the hundreds of billions. Major global institutions are searching desparately for cash. Their fellow financial institutions are equally cash-strapped.

Suddenly, your country has a lot of power.

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With cash-strapped companies coming cup-in-hand to their equally cash-strapped governments, the world over is looking for Warren Buffett-sized checkbooks to help ease the credit crunch.

Increasingly, the world is looking to China and its $1.9 trillion in reserves.

Should China whip open its gigantic checkbook to bailout the global financial system?

Does it even want to?

China’s been burned before with its investments in the U.S. financial sector. It has a 9.9% stake ($5 billion) in Morgan Stanley (MS:NYSE) that has been pummeled by the industry-wide downturn. And some Chinese leaders believe that the U.S. and Western Europe should clean up their own mess.

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With banks dropping like flies here in the U.S., one must accept that this shake-up cannot be contained within U.S. borders.

Indeed, banks in Western Europe are already following U.S. institutions into the dark abyss, and now the European Union must decide if some “bailouts” will be allowed. For example, the EU is now reviewing its decision to allow a $7 billion bailout of German bank West LB.

And some regions are looking to preemptively bail out its banks.

Ireland has just announced that it will guarantee all deposits, bonds and debts for the country’s six largest banks for the next two years.

It’s a controversial decision that some say will give these Irish banks - with international branches - an edge over other banks. But it’s also in line with what the European Commission has been wanting… Well, sort of.

The EC wants banks to, in essence, hoard cash. Like a rainy day fund, just for times like these.

According to the Commission, banks should put away more cash in order to be able to cover its riskier investments.

Of course, that makes sense, but I don’t think a lot of banks will be able to pull that off in this type of environment. In fact, this may have a negative effect. If banks take more liquidity out of the markets, there will be less money to lend, and less revenue for the bottom line.

So should governments step in and foot the bill, or should the responsibility rest solely on the shoulders of the financial institutions?

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