The death of the euro is more likely than its survival

The Italian state’s cost of borrowing remains below the peaks of the end of last year, but the economy is now much weaker, and getting weaker still. Consumer spending and confidence are falling more precipitously than during the Great Recession of 2008-09, and unemployment is rising more rapidly. The collapse in investment is not much shallower than during that period.

Without growth, Italy’s debt dynamics will become unmanageable. Growth looks unlikely over the next year. Deep recession is far more likely.

As if that were not bad enough, there is enormous political risk. An election must be held by April.

Opinion polls show support for the reforming caretaker government falling from 71 per cent last November to 33 per cent in June. The polls give no indication that Italians are uniting behind any effective alternative. A political vacuum looms in Rome.

Without a radical change in euro zone structures and its policy response, Italy is headed for default. The decision to allow that to happen – or to prevent it – will ultimately be taken in Berlin.

When once it was unthinkable that post-1945 Germany would ever turn its back on Europe, most voices from that country talk of what Germany dislikes, opposes or refuses to countenance.

While few of the points made by German opponents of more radical policy responses are wrong, the way they frame the options is grossly misleading. Germany does not have a choice between doing more and status quo. The status quo has failed. Sooner or later its failure will manifest in an unprecedented financial shock which will plunge the European economy into depression. The only choice is to integrate further or accept the horrendous fallout from that shock.

But even if Germany’s political leadership does take the leap, and agreement can be reached in short order on a big step towards closer union, would public opinion follow? Given the magnitude of the integrative step, referendums would be inevitable in many countries. European voters have frequently opposed more Europe when asked.

In 2005 French and Dutch voters shot down the European constitution and Irish voters have said no to two treaties over the past decade. Under current circumstances, it is hard to see increasingly eurosceptic electorates all favouring a change as historic as political union.

Europe’s economy is weak, its financial system fragile, its leaders divided and its peoples sceptical of further sovereignty pooling. One can only conclude that disintegration is now a more likely outcome than further integration.