The next few weeks, maybe even days, will be decisive. Will the eurozone collapse or will Germany, the controller of the the European Central Bank, permit the ECB to do what a central bank does, quantitative easing? For Germany to agree to this it will have to accept that the ECB's role cannot be limited to reigning in inflation, it has to be permitted to buy government bonds, to be the lender of last resort and Germany has to act as backstop.
Stark decisions for German politicians given the mindset of German citizens, but the alternative is just as uncomfortable. An involuntary break-up of the eurozone will damage the world economy and Germany's export trade. Either way, Germany is going to suffer.
It may be that Germany will follow the former course of action, but it will exact a huge price for so doing. It will insist on greater fiscal and political integration within the eurozone and will demand that countries are 'policed' to ensure policies to improve the competitiveness of weaker economies are enforced rigorously.
The elephant in the room is democracy. The EU has currently a democratic deficit and the concern has to be that closer union will diminish state sovereignty even more. Will citizens accept this? I doubt it. Shall we see a two or even three tier EU which could come about if three eurozone splits into two zones and there are also countries in neither zone? Is a two or three tier EU even remotely workable?
The current position is a nightmare and unfortunately it is them that shackled us in this disaster who are charged now with freeing us. Inspires confidence?
http://www.cnbc.com/id/45225209 Merkel on integration
Quote from the Guardian article:
The president of the European commission, José Manuel Barroso, issued a new call for the EU to "unite or face irrelevance" in the face of the mounting economic crisis in Italy. "We are witnessing fundamental changes to the economic and geopolitical order that have convinced me that Europe needs to advance now together or risk fragmentation. Europe must either transform itself or it will decline. We are in a defining moment where we either unite or face irrelevance," he said.
Senior policymakers in Paris, Berlin and Brussels are reported to have discussed the possibility of one or more countries leaving the eurozone, while the remaining core pushes on toward deeper economic integration, including on tax and fiscal policy. "France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.
Update: 10 November: