It has not been so long that the concept of an ironclad monetary and financial euro union has been distorted, and market reacts now differently against different countries with the euro currency. The conceptual distortion has already dealt terrible blows to the region.Many financial institutions during years deemed all euro countries as a united region which deals with any possible financial crisis jointly.
Thus, without care about the possible default by economically weak or peripheral euro countries started buying issued sovereign bonds and provided loans with much low interest rate.
The process was further accelerated after housing bubble-burst-up in the US. Banks and other financial institutions after US mortgage investment went bust and sought refuge in bonds issued by some euro countries.
But the crises in Spain, Portugal, Greece, Ireland and now Italy shows that market has started acting differently. Now it costs, for instance, Greece multiple of what Germany pays for the same amount of loan. There is no loan available for Greece to receive and pay its huge debt, and no financial institution is ready to buy Greece bonds in order to provide with the capacity to avoid default.
So, what is the choice ahead?
The choice ahead is seeking help of strong euro economies like France, Germany and etc as well as international monetary fund like IMF. But IMF has harsh condition to provide the crisis countries with necessary money. And euro countries also have differences over the issue of how to bail out their fellow unions.
Moreover, after tough economic and political bargain, euro economies approved to provide crises stricken countries with economic packages on condition that they tighten economic belt and scale down largely their budget deficits. Some austerity measures have already enforced in several countries and further steps are yet to be held.
The austerity measures have led into social and political disturbances. Various demonstrations have been held against government policies of reducing public budgets and raising taxes which further have led into higher unemployment rate.
George Papandreou, Greek Prime Minister, resigned after facing severe pressures from his euro counterparts over his statement to hold a referendum for being in the euro zone as well as tough domestic criticism over his austerity measures.
Silvio Berlusconi has said that he would resign after passing austerity measures in the parliament. Thus, there is no immediate measure that could fix the euro problem, and there are serious concerns over crisis contagion.