Sometimes truth is stranger than fiction. Who would have thought the Euro authorities would by their words undermine their own creature, the Euro? It has been a bad week for advocates of the single currency.
As it is a political project, this will not worry its supporters unduly. They see this as a useful opportunity to press for more political powers over the economies of Euroland. They may have started the Euro by placing the cart of monetary union before the horse of political union, but they are now in the market for a suitable animal to take the project on.
We should keep our eye on the European Central Bank. It seems to have been growing Eurobank worries which led to the pressure on Ireland to do more about its banks. In recent months the Bank has been allowed to buy in member states bonds, but there is still an argument about whether it should print money to do so.
Some will want the ECB to behave more like the Fed and the Bank of England, and will be pleased if in future it buys in more bonds and allows the single currency to drift down against other major trading currencies to ease the adjustment of peripheral Euroland. Others will want the Bank to remain tough, and require more EU powers over member states budgets so the countries need to borrow less and the Euro stays strong.
It would be wise if the ECB and the EU regulators made sure of the strength of Portuguese and Spanish banks before markets start to test out those two countries more. The EU, Euroland and the IMF may be able to afford Greek and Irish bail outs, but Spain is a much larger country. We do not need a phase three of the Euro crisis. Just putting together a package for Ireland does not guarantee peace thereafter. Every member state and all major banks within Euroland have to pass muster and be seen to do so. You could reach the point where the sums the stronger countries have to find to help the weaker are too great for the stronger members as well. In the end a debt crisis can only be overcome by working through the debts, minimising the bad ones, and writing them off against profits or new capital.