MUNICH - These days you might find yourself with the twisted thought that there may actually be an upside to all the turbulence surrounding the euro. After all, the crisis succeeded in doing something Italians couldn't for 17 years: getting rid of Silvio Berlusconi. The longest-serving post-War Italian prime minister leaves an atrocious legacy. If former EU Commissioner Mario Monti -- and not one of Berlusconi's protégés -- succeeds him, the country will get something it sorely lacks: an internationally respected economist who is incorruptible, both in the political positions he takes and in his personal moral standing.

Similarly, the nomination of Greek central banker Lucas Papademos as prime minister is also a step in the right direction. He understands better than other possible candidates what signals to send foreign creditors. However, Papademos is not entirely untouched by the sins of the past: he headed Greece's central bank when the country qualified for the euro zone based on manipulated budget data – and at the time he didn't denounce the tricks nearly as clearly as he later claimed he did. Still, Papademos is not a part of the incompetent political system that brought Greece to the abyss -- so in that sense he offers some hope for the country.

It may not be mere coincidence that independent economists seem slated to assume leadership in both crisis countries. For one thing, many believe they will be able to push back against the stunning power of the financial markets. It remains to be seen if they have enough perseverance and charisma to get both the politicians and citizens on board as they do what's needed to clean up the mess.

Yet as much as Europe supports and counts on Papademos and, one hopes, Monti , they alone will not be the determining factors in the fate of the euro. That much was clear from the frustrating reaction of investors when Berlusconi announced he was stepping down. Despite the apparent good news for markets, the financing costs of Italian bonds rose unsustainably beyond 7%. Confidence in the ability of the southern European countries to implement reforms is so great that investors are simply fleeing.

Unlike Greece, Italy at least has a semi-modern economy with internationally successful industries. And while Italy is incurring relatively little new debt, it's taking a beating from the markets – unlike the United States, which also has a frightening high pile of debt.

But Europe's governments don't have time to waste determing the banks' role in causing Italy's debts to explode: by next year, the third largest euro country has to replace 300 billion euros of old credit with new. Italy's problems have brought the currency union to a very clear fork in the road: either Europe supports the single currency with massive guarantees for member states, or it abandons the euro.

More power to finance

A guarantee would mean that in case of emergency, the European Central Bank (ECB) would buy up bonds even more than it has been doing. So far, the European Financial Stability Facility (EFSF) – set up specifically to deal with the euro zone's sovereign debt crisis – has failed to impress investors, and wouldn't have enough capacity to cover the crash of Italy. A central bank as a single institution possesses so much financial power that no investor pack is its equal. Transforming the ECB in this way would send the signal that Europe is not ready to sacrifice the euro to speculators.

This would obviously be a very serious move since it would mean the bank would be printing money and setting off inflation – which in its present configuration is not what it's meant to be doing. In making the move, Europe's risky bet would be that, with the ECB at the ready as credit giver, the guarantee would create so much confidence that investors would start buying bonds again, and the financing costs for Italy and others would remain feasible.

The bet goes against the German central bank model, which has long been in use in the United States. Over the next few months, the Federal Reserve will be buying U.S. bonds to the tune of several hundred billion dollars.

However, such ECB involvement would be acceptable under only one condition: states benefitting from it, like Italy or Greece, would have to accept that Europe imposes its savings and reform measures. That obviously restricts national sovereignty, but it's indispensable, and there would not be the political will without it.

The alternative to this admittedly risky plan is that Europe quite simply abandons the euro. The result would be a run on the banks as Greeks, Italians and others removed their money. Many banks would collapse. Because of such unprecedented forced debt forgiveness, it would be years -- as was the case with Argentina -- before the ailing countries saw any international credit. A strong deutschmark would make German exports significantly more expensive, and many jobs would be lost. Because of these and other unforeseeable horrors, Europe should support the euro: not at all costs, but certainly at the risk of involving the central bank.

Read the original article in German

Photo - Renegat