A fork in the road for the euro?

by Stephanie Flanders

BBC News
July 20, 2011

There is no middle way to resolving the problems of the euro. That is the most explosive message of this week's report on the eurozone from the IMF, though you might have to be Angela Merkel or Nicolas Sarkozy to get the full effect.

Commentators understandably jumped on the Fund's warning. The press release accompanying the report suggested that the continued tensions over sovereign debt "constitute a key risk to the outlook, with possible large regional and global implications," and that "market participants remain unconvinced that a sustainable solution is at hand".

But that is simply a statement of reality. As I said on the Today programme this morning, more interesting were the ambitious proposals in the longer staff report for finally putting market concerns to rest.

It has long been said that the eurozone faced a choice in this crisis between coming together - and breaking apart. At the end of last year, Chancellor Merkel and President Sarkozy said emphatically that they would hold it together. But in practice they have continued the previous strategy of attempting to muddle through.

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