The real European crisis still hasn't begun, but it will soon
The original meaning of the word 'crisis', dating back to the time of classical Greece, is the turning point of a disease, when the patient either begins to recover or sickens and dies.
In that sense, the euro zone isn't yet in crisis. There are signs, however, that the financial and economic sickness that has afflicted the countries of Europe's single currency for the last 21/2 years may well soon reach its turning point, either for better or worse.
Firstly, fears over Greece's continued membership of the euro are intensifying once again. The representatives of the troika - the European Commission, the European Central Bank (ECB) and the International Monetary Fund - currently in Athens to review Greece's progress are certain to find the government has failed to meet the deficit reduction targets set out in its bailout package.
That's thrown the next tranche of bailout funds, due to be disbursed in September, into doubt. However, some observers believe the crunch could come as soon as next month when the Greek government is due to repay a Euro3 billion (HK$28.17 billion) bond.
Either way, analysts at Citigroup now say it is 90 per cent certain Greece will leave the euro, most likely by early next year.
Next there is Spain, where the European authorities' pledge last week of a Euro100 billion loan to recapitalise the country's banks only focused market attention on the government's own debt levels, forcing Madrid's borrowing costs up to an unsustainable 7.6 per cent.
And then there is France, where new president Francois Hollande's contradictory policy pledges have highlighted the impossibility of raising taxes to reduce government deficits while simultaneously boosting growth.
The resulting deterioration of sentiment yesterday prompted ECB chief Mario Draghi to promise 'to do whatever it takes to preserve the euro'.
His words were greeted with initial relief. But when the markets reflect on what it actually would take to ensure the single currency's survival, sentiment is sure to worsen once again.
In a nutshell, the problem for the countries of Europe's indebted fringe is that any attempt to reduce debt by raising taxes and cutting spending crushes growth. That eats into revenues, which exacerbates deficits and just adds to debt levels.
A workable solution would therefore have to postpone dealing with deficits in favour of preventing a worsening of the recession affecting much of the euro area.
But delaying deficit reduction would risk damaging sentiment further. So to restore market confidence the euro zone's countries would have to agree to some form of debt centralisation, with the stronger economies, notably Germany, agreeing to guarantee the bonds of their weaker neighbours.
This makes excellent sense. Germany has benefited enormously from the single currency. Some 40 per cent of German exports go to other euro-zone countries. A break-up now would be disastrous. It would depress demand in Germany's core markets while propelling a relative appreciation of the German currency, which would severely erode the competitiveness of German exports.
According to some estimates, the cost to Germany of a break-up would be around 10 times as great as the price it would have to pay to keep the single currency intact.
But although paying to preserve the euro makes sound economic sense, selling the idea to the German electorate is proving a tough proposition.
Productive German workers see no reason why they should subsidise their less efficient Mediterranean counterparts, while German politicians complain about the difficulty of enforcing fiscal ceilings and the dangers of moral hazard should Berlin agree to underwrite the debts of its southern neighbours.
As a result, although the cure is clear, it remains highly doubtful whether the necessary treatment will be administered.
Either way, the crisis is approaching, and soon we'll find out, whether for better or worse.