From Australia
Many commentators, including this blog, did not expect the euro to end 2012 in one piece. It seemed likely that some major re-configuration would be required to set the single currency onto a secure path and that might include some weaker members dropping out. Instead what has happened is that just enough has been done to stop a partial collapse, whilst nowhere near enough has been done to end the crisis, nor to re-establish economic growth in the EU.
Nevertheless three critical points indicate that the chances of the euro surviving are now a shade greater than it failing. The first is that Germany has learned that it cannot just lay down its own law and demand everybody fall in line without becoming associated with a new form of tyrannical economic repression. Second Germans do not want to become a hated people once again, however much they want a hard currency. Third, little by little, the German position thaws in the weak sun of an occasional Merkel smile of sympathy for the plight of her struggling spendthrift neighbours to the south.
Facing Euroland there are now two prospects. Twenty years of severe austerity and meagre growth, accompanied by significant popular unrest and political instability. Or a fresh start. This means a dramatic political re-engineering project to create a pan euro financial executive to direct economic policy in all euro countries based on democratic principles, armed with tax raising powers and the means to collect the money from those who never pay. It also requires a financial initiative on the scale of the post war Marshall Plan, involving QE to buy in vast tranches of national debt for cancellation, coupled to massive investment in industry, infrastructure, jobs, technology and education.
If restive populations get the economic boost , they will vote for the loss of sovereignty and the imposition of fiscal discipline. They will know if they do not Germany will lose patience and walk away. The paymaster will be gone. Then they really will be in trouble.