BRUSSELS (Reuters) – The euro zone is staring into the abyss.
Unless European leaders agree on a political remedy for their sovereign debt crisis at a Dec. 9 summit, and the European Central Bank then intervenes massively to support government bonds and European banks, the euro may start to unravel.
Foreign investors are already shunning euro area sovereign bonds, European banks are desperately trying to sell assets including bonds, depositors are withdrawing growing amounts from southern European banks, and interbank lending is freezing up, forcing ever more lenders to turn to the ECB for funds.
Italy, the third largest and most vulnerable euro zone state, has a mountain of debt to refinance from January, and its short-term borrowing rate hit an alarming 8 percent on Friday.
Josef Ackermann, chief executive of Deutsche Bank and chairman of the Institute of International Finance (IIF), the world banking lobby, delivered a stark message to European Council President Herman van Rompuy last week, according to a source familiar with the conversation.
Allowing political indecision to continue into the new year risks a dramatic worsening of the crisis on financial markets, Ackermann warned Van Rompuy and other EU officials.