Euro crisis: “And all bets are off if Europe does not start to grow again…”

At the Guardian’s business blog, Graeme Wearden is live-blogging the European debt crisis, as the “OECD predicts some negative growth in eurozone in 2012… and calls for “bold” action from the G20, Italian bond yields hit 6.13%, Markets fall as bailout deal euphoria peters out, [and the] Euro crisis drags MF Global to the brink“.

Meanwhile BBC Europe editor, Gavin Hewitt, considers “Europe after the euphoria”

Maybe it was the lack of sleep, or that expectations had been exceeded, but there was a whiff of triumph in the post-summit statements at 4am last Thursday.

The heady comments continued into the day, with French Finance Minister Francois Baroin declaring that “the euro has been saved”.

Inevitably, a more sober assessment has followed. It is not so much that nothing was achieved – it is more that no one is quite certain what will sustain. The agreement has left a whole raft of questions.

After asking “Will the banks volunteer for 50% losses?” [Probably not? – Ed] he goes on to note

Few believe that Greece will be able to deliver on its commitments, and further funding will be required. Even on the best-case scenario debt will only fall to 120% of GDP by 2020. Greece is staring down a long road of hardship.

Then there’s the EFSF – the eurozone’s main bail-out fund. It has been ramped up (leveraged), or so we are told, to one trillion euros – but no one can explain how the EU gets to that figure. The Europeans are not putting in more of their money. An expanded fund will be hugely dependent on China, Russia, the IMF, and they have yet to declare their hand.

And

So on to Italy. The fund – even at a trillion – is not enough to protect Italy if it gets into difficulty. Its borrowing costs are currently unsustainable. Next year it needs to finance 300bn euros of its 1.9tn euro debt.

Silvio Berlusconi arrived at the summit with a 14-page letter of promises to reform the Italian economy. “Will Italy do what it promised?” asked the German Finance Minister Wolfgang Schaeuble. It did not boost confidence in the Italian leader when he referred to the euro as a “strange currency” that had “not convinced anyone”. Even if Silvio Berlusconi has the will to reform does he have the credibility to push change through?

There is a very real danger that the Italians – like the Greeks – will resist cuts in wages and benefits.

And all bets are off if Europe does not start to grow again. Certainly the indications are that next year the European economy will shrink.

His final point is worth emphasising

A step has been taken towards solving the eurozone crisis, but it is stirring deep questions – not just about the debt crisis but about the future of the European project itself.

And as I may have mentioned

It’s still“the political trilemma.” 

[Europe is still sexy! – Ed]  Of course it is.

And, as I’ve been saying, for supporters of the “European Project”, the options are stark.

And when it’s that serious, you have to lie…

But read Gavin Hewitt’s whole post.

Update  According to a BBC report

Greece will hold a referendum on a new European Union aid package intended to resolve the country’s debt crisis, Prime Minister George Papandreou says.

Mr Papandreou said a vote of no-confidence would also be held on the deal – but no dates were set.

It’s certainly one way to decide whether the euro stands or falls…  No sign of a response from Frau Bundeskanzlerin.  Yet.