December 9th, 2011
12:56 AM GMT
(CNN) - In the words of the chief executive and co-chief investment officer of Pimco, Mohamed El Erian: "This is Europe's moment of truth. For the sake of the region and that of the global economy, its leaders must come up with a solution at a time when, to use Nicolas Sarkozy's phrase, `the euro needs to be refounded’.”
Lest we forget, the problems of the eurozone have developed from a sovereign debt crisis, into a liquidity and – dare I say it – a solvency crisis. It has created all the ingredients for a banking meltdown that could cripple global growth.
So what are the chances of a final solution in Brussels this week? Pretty weak, I would say.
What Europe really needs is a proper "fiscal union" with all the tax-and-spend implications that would entail. But that risks a bruising fight between euro and non-eurozone members which could ultimately lead to two-tier Europe going forward. Time is running out. That's a situation we can ill afford at this stage.
So Europe's leaders will hope that this "fiscal compact" deal will be enough to convince markets of the viability of the euro going forward. Like it or not, the ECB’s move Thursday showed quite clearly that the central bank isn't prepared to shoulder the burden of solving this crisis alone.
“Those who believe in Colin Powell's doctrine of ‘overwhelming force’ will argue that, at a time of great crisis, the ECB is being too measured, too timid and too refined," said El Erian. "Others will congratulate the institution for positioning itself for success in a marathon rather than an exhausting and disappointing sprint.”
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