Only decisive EU action can save euro

Stark and increasingly strident warnings about the fate of the euro may finally be pushing the leaders of Europe's strongest countries to act decisively to save the currency this week, having spent the past two years in utter denial that the Barbarians were at the gate. The growing crisis at the heart of Europe's single currency is now threatening to plunge even the most robust economies on the continent into a further deep recession, promising waves of bankruptcies and destruction of wealth, according to the OECD. The effects of this debt crisis have been widespread. Belgium is being forced to pay sharply higher interest rates this week, while Italy, Spain and France have also seen their bond yields rise sharply. Even Germany last week found the chill winds of this latest crisis blowing through Frankfurt when it struggled to attract demand for one of its bond offerings. Adding to the sense of urgency this week was Poland's foreign minister who, in a speech in Berlin on Monday, said that Europe stands on the brink of a disaster and only Germany, its biggest economy, can avert an "apocalyptic" breakup of the eurozone and the EU's single market. Berlin has been coming under serious pressure to allow the European Central Bank (ECB) to embark on unrestricted purchases of stricken eurozone countries' sovereign debt but Chancellor Angela Merkel has, to date, strongly opposed both eurobonds and a more active role for the ECB. Her logic? Germany fears indebted countries would no longer have an incentive to reform their economies, in addition to fears about reigniting inflation. Eurozone finance ministers have been meeting early this week under intense pressure to halt the debt crisis from shattering not only monetary union but the entire European economy. The possible fragmentation of the eurozone is now a red alert issue at the highest levels of governments on all continents and EU ministers have now run out of time. They need to show that they can bolster the €440 billion EFSF rescue fund that has already helped Ireland and Portugal, but which is considered too small to save larger economies like Italy and Spain if the crisis forces these countries to seek help. "The euro area crisis represents the key risk to the world economy at present," the OECD said in its unusually stark outlook this week, strongly suggesting that the ECB should buy up devalued government debt bonds in huge quantities and cut interest rates, taking the completely opposite tack to Germany which has so far rejected additional bond purchases. It warns that a significant worsening of the crisis would push the single currency area into a deep recession. In that instance, there would be irresistible pressure for some countries to abandon the euro - but this would only amplify the crisis and most likely trigger mass bankruptcies and a deep depression throughout the continent which would feed through to the rest of the global economy. It is a scenario that is in no country's interest, least of all Ireland's, and it is the reason European governments simply must find a solution to this most intractable of crises, one which will give some level of confidence and comfort to the markets that it is possible for the eurozone to manage its way out of this sovereign debt mess that it has created. To do that, there must be a credible containment of the EU debt crisis by massively boosting the firepower of the eurozone bailout fund, giving the ECB a bigger role in acting as a financial back-stop and, most controversially of all, greater fiscal unity throughout the eurozone. Alleviating the debt yoke on Europe's most burdened countries like Ireland will come at considerable cost to the EU's strongest members, but it is the price that will have to be paid in order to keep the eurozone intact. Germany must either lead the eurozone out of the crisis or it will be forced to manage its break-up. The former will be unpalatable for German taxpayers but the latter would be completely unpredictable. If Frau Merkel refuses to stand four-square behind the other members of the eurozone at this historic crossroads, then she risks the unravelling of the currency bloc and the possible destruction of the entire European ideal.