Greece, the new sick man of Europe, continues to mesmerise markets. Currency, bond and stock exchanges swing with each dispatch from the front lines.
The ratings agency Fitch declares a default probable, and markets drop. But the European Commission, the European Central Bank and the International Monetary Fund agree to renew talks in Athens next week, a signal that they take Greek austerity efforts seriously, and so the euro gains in value. Gloom from analysts drives markets down again. But the latest street protests are modest, reassuring investors. And so on.
But this is really all just a sideshow. The underlying problem remains: although Greece has already imposed sharp budget cuts, and even if the $11 billion (Dh40bn) EU payment arrives on schedule next month (the sixth instalment of support), by early next year the government will again be unable to meet payroll and pay other bills. That will require yet another tranche of EU money and still more cutbacks at home. With Greece's economy expected to shrink by 5.5 per cent this year, the protests in the avenues of Athens will only become larger and louder.
And this is not about Greece alone. A Greek default would badly wound euro-zone banks, threatening a global banking crisis. But even without another liquidity crunch, the whole euro experiment is at risk. If Greece fails to stick to austerity measures or gets a discount on its debt, voters in Germany and elsewhere are sure to make their displeasure heard. And Portugal, Ireland, Italy and Spain will want a similar deal.
This crisis would be less menacing if some European leaders could see over the horizon of their next elections. But after Germany's Chancellor Angela Merkel's party recently received a drubbing, there is always the chance that national politics will trump euro-zone policy.
On Tuesday, Greece's Foreign Minister Stavros Lambrinidis called for greater pan-European economic governance. He was echoing the call from Jean-Claude Trichet, president of the European Central Bank, for in effect a euro zone super-ministry of finance.
We need hardly say that this idea, like the proposed euro-zone bond, will not play well in Berlin or The Hague or Paris. But the euro zone is slowly coming to a choice: even greater cohesion, an option not without difficulties, or else the likelihood of flying apart.