Analysis: Tighter euro zone gains ground as debt crisis exit
By Paul Taylor
PARIS (Reuters) - "Tell me how this ends," U.S. General David Petraeus asked memorably of the 2003 invasion of Iraq.
Political leaders and economists in the euro zone are searching frantically for answers to the same question as a bond market rout of European sovereign debt accelerates, putting the future of the single currency in jeopardy.
Until a few weeks ago, the most likely outcome appeared to be that the 17-nation currency area would muddle through. The euro zone would bail out a few highly indebted small peripheral states, patch up its rickety fiscal governance and avoid either a break-up or a major shift toward federal integration.
That was then. Now it seems that without a radical game-changing initiative within weeks, the crisis may no longer be controllable.
Efforts to construct a financial firewall to protect Italy, Spain and potentially France are running behind the curve, shackled by legal and political obstacles to using the European Central Bank or issuing joint euro zone bonds.
"This summer, I thought the "muddling through" scenario had a 50 percent chance of success. Now it's clearly less," said Jean Pisani-Ferry, director of the Brussels-based Bruegel economic think-tank and an adviser to the French government and the European Commission.
"Leaders everywhere are now aware of the very high risk if they let things run out of control, that it can lead to a financial catastrophe for Europe," he said in an interview.
"We are much more likely to see bold decisions to save the euro project than the opposite, which would be to let the constraints prevent any solution." Continued...