The euro: Taking on the 'wolf pack'
In a series of late-night moves, European finance ministers, the European Central Bank, and the IMF threw everything at defending the euro.
This was unveiling the nuclear option and more. A truly staggering $1 trillion has been deployed in an effort to stabilise world markets. In a short space of time this was no longer about the debts of Greece or Spain; it was a race to save global economic recovery.
Banks once more could have faced liquidity problems. President Obama was working the phones with Europe's leaders. In the desperate race to have a plan in place before the Asian markets awoke, doubts were swept aside. The rule book was forgotten in a matter of hours. The European Central Bank decided to buy eurozone government bonds; a policy it had only recently fiercely resisted.
Some believe that the massive 500bn euro package to guarantee loans to eurozone countries should have required a new treaty, yet it was almost nodded through. The Commission has based the arrangement on a narrow interpretation of the Lisbon Treaty, which refers to "exceptional circumstances".
The European Commission, which is after all a civil service, could now find itself borrowing on the markets to lend to any state in difficulty. "This truly is overwhelming force," said Marco Annunziata, from Unicredit. This firepower is all aimed at steadying the markets, or as the Swedish finance minister put it, stopping the "wolf-pack behaviour" of the speculators.
EU Monetary Affairs Commissioner Ollie Rehn said "it proves we shall defend the euro whatever it takes". In the short-term the bond markets should settle and the cost of borrowing should fall for countries like Portugal and Spain. Now it may be that much of this rescue package will never be called on, but even though the immediate blaze may have been put out there will be long-term consequences.
If countries get into difficulty and cannot re-pay their loans other eurozone countries will have to foot the bill. It remains unclear how the money will be deployed and on what terms. Some of those countries are already struggling with crippling deficits and will have difficulty finding the money. In the end Germany will have to bank-roll this. On paper it is committed to paying 123bn euros.
The German voters in North Rhine Westphalia clearly did not appreciate bailing-out Greece. Germany could potentially end up as the Paymaster General for much of the Euro Group. If that happens one of the likely consequences of this crisis will be that the most important country in the European Union will become progressively more Eurosceptic.
With these vast funds available there will be a temptation for countries to draw back from the austerity programmes. Spain, for one, has shown itself reluctant to pursue further cuts. Even the Greek government besieged by rioters might decide it can back off. After all, what sanctions would be employed against it? The message that emanates from all this is that rather than a country being forced out of the euro, money will always be found if a country gets into difficulty.
The fundamental problem for Europe is a lack of growth, inflexible labour markets and expensive public sectors. The challenge for politicians will be explaining that the old social model can no longer be sustained. Benefits will have to be frozen. Entitlements withdrawn.
It is an open question whether Europe's leaders will embrace what will be a revolution, or will they fudge the challenge and keep dipping into this well of money? On Monday, the President of the European Council, Herman Van Rompuy, said leaders had to show courage. Europeans would have to work harder and for longer. It is a message that politicians have so far shied away from.
Peter Morici, a professor at the University of Maryland, almost immediately fired a warning shot. "By establishing a 750bn euro-fund," he said, "Germany and other strong European states are chasing a dream - a single Euro currency and broader European unity - that may have no place in reality."
Certainly the flaws that brought Europe to this point have not been addressed. They have monetary union without fiscal union. Already there are EU Commissioners calling for fiscal powers to be pooled. President Van Rompuy said: "We can't have a monetary union at the end without some form of economic and political union, and that is our big task for the coming weeks and the coming months."
The rules governing the euro were flouted. They will have to be tightened in the future. But will serial offenders be excluded from the euro, or will they always be accommodated? Beyond that is the problem of sharply different countries sharing the same monetary union. Anyone who has recently spent time in both Greece and Germany knows they are light years apart economically.
The problem for the weaker countries is that being inside the euro they do not have the means to become competitive through devaluation. These fundamental questions have not been addressed. Here, too, the pressure will grow for further integration. The President of the Commission, Jose Manuel Barrosso, said: "We need a stronger union in economic policy, a stronger compliance by member states."
So the battle lines are being drawn up. There will be another push for further integration. Some governments and some voters may resist.