Crucial days

The euro is going through a period of dangerous uncertainty, where a complete overhaul of the currency or its complete disappearance is not out of the question. For the first time in the single currency's history, there is a chance - albeit a small one - that the system may actually end up bankrupt, and uncertainty is starting to infect both companies and banks. The fact that they are currently preparing their own stress tests to measure the impact of higher interest rates as a result of one or more of the countries affected by the crisis defaulting on their debt, and are considering the possibility of a split in the euro area, reveals the worsening situation in Europe (which is the main cause, let us not forget, of global economic stagnation, as Barack Obama and Timothy Geithner repeatedly point out). There is nothing left but to agree with European commissioner for economic and financial affairs, Olli Rehn, when he says that the next 10 days, before the European summit, are going to be crucial for the fate of the euro.

In terms of the origins of this catastrophic confusion, we must mention, above all else, political factors, such as the incapacity of the de facto European powers (i.e. France and Germany) to resolve the Greek and Italian crises, the refusal of Berlin to accept a future single Treasury for the euro that would back up member states, and, as a consequence of these failures, the stampede forward that seems to be suggested by the chaotic messages from Germany and France about the new stability criteria for the euro, which, according to some versions, would imply the fragmentation of the euro zone into first- and second-rate countries.

It is evident that Merkel and Sarkozy are trying to agree on new stability conditions for the euro; and it is yet more evident that they disagree over the need for an immediate intervention to alleviate the pressure on debt.

The break-up of the euro zone may result from more than just the temptation of France and Germany to create a two-speed euro zone, made up of rich and poor countries. It may also end up the victim of the artificial uncertainties, sown by Paris and Berlin, which perhaps are explained as a tactic to create panic in the recalcitrant peripheral countries, and force them into an uncritical acceptation of the "new European financial architecture." But the biggest risk is the failure of the European institutions to put their decisions into action.

The Eurogroup on Tuesday displayed once more its inability to take decisions at the rhythm of the crisis. It frustrated the expectations of creating a Financial Stability Fund with sufficient power to deal with the debt storms, and instead called on the International Monetary Fund to help economies with debt problems while once more falling into the same trap of not specifying how that solution will take shape.

Meanwhile, the central banks must patch up the leaks opened up by the national debt crisis. On Wednesday, the Fed, the ECB, and the central banks of Japan, the United Kingdom, Switzerland and Canada acted in unison to ease dollar liquidity. But these are circumstantial remedies to compensate for the terrible deficit in European politics that is dragging the euro into a vitally important crisis.