Think of the european nations as a herd of bison pursued by a pack of wolves. For long periods nothing seems to happen. Until, one of the bison gets separated from the herd and the wolves descend in a lightning coordinated assault. However, if the herd regroups and charges, the wolves have no chance and will back off again.
I'm grateful to Frozen Planet for this imagery, which isn't exactly how financial markets work, but is helpful in explaining the political dimension of the sovereign debt crisis. The point is that the nations always have strength in numbers. The markets, which have been picking eurozone nations off one by one, can only do so as long as governments don't unite against them. Politics trumps economics
The trouble is that the euro bison, instead of charging the wolves, are wandering around the tundra, nibbling the grass, butting heads and generally failing to get their act together. This is because there's a failure of leadership: there is no dominant bison to call the others into line and charge the markets. Well, actually there is dominant bison – Germany – but for understandable historical reasons, Germany is reluctant to tell the rest of the herd what to do. A German dominated superstate is a very frightening prospect for countries, like France, who spent half of the 20th Century fighting them.
If the eurozone had a central authority, a proper central bank, or an institution like the Federal Reserve in America, the markets would be losers and would have to seek kills elsewhere – the cost of borrowing in Italy would be the same as in Germany because the Italian bonds would be european bonds, backed by the combined might of greatest economic force on the planet – the European Union. What is happening now is that the markets are testing highly indebted countries like Greece and Italy and the rest of the herd is leaving them dangerously exposed.
