In looking at what went wrong, some point to the profligacy of borrowers while others stress the design flaws in the system. Yet others pin the blame on how the crisis has been managed. There are still others who think that the eurozone is a victim of a credit crunch that began in the United States.
There is some truth in all these explanations. While the credit crunch did trigger the crisis, it exposed a host of problems that had been masked by a decade of easy growth. Peripheral countries had grown uncompetitive as a result of rising wages. Often there was corruption and excessive debt, while anti-competitive practices that suited vested interests kept productivity low. Almost everywhere, governments ran unsustainably generous welfare states.
The crisis has also been managed appallingly. The zone took two years to let Greece restructure its debts. In the meantime, the French, German and other banks which had financed Athens profligacy were able to get much of their money out of the country. If the banks had been hit early, their governments would have had to bail them out. The discussion would then have been as much about foolish lenders as about lazy borrowers.
Among the other mistakes was the failure to clean up the zones zombie banks and the fact that both fiscal and monetary policy were too tight. But troubled countries have also taken too long to root out vested interests and restore competitiveness.
Meanwhile, the two most popular solutions to the crisis arent really solutions at all. Euro sceptics want to break up the single currency. While the euro should not have been created when it was, the transitional economic and political costs of abandoning it would be massive.
Euro enthusiasts, by contrast, pin their hopes on a full fiscal and political union to complement the monetary union. This is pie in the sky. Neither national politicians nor the people are willing to see much more power centralised in Brussels. There is good reason for this too: the European Union is remote and only loosely accountable.
So whats the way forward The answer is a muddle-through consisting of small doses of looser monetary and fiscal policy as well as a bit more integration combined with large doses of reform on both national and supranational levels.
To some extent, this is already happening. Only last week, the European Central Bank (ECB) said it expected to keep its key interest rates at present or lower levels for an extended period. Given that the US Federal Reserve is simultaneously indicating that it will tighten monetary policy as the American economy continues to strengthen, the euro fell a bit versus the dollar. Further depreciation seems likelysomething that would take the edge off the eurozone recession.
The ECB has scope to run a looser monetary policy because inflation is undershooting its target of just below 2%. But one should not exaggerate its room for manoeuvre.
Meanwhile, the European Commission has been easing up on the fiscal austerity it demands of nations. Earlier this year it gave several governments a year extra to hit budget targets. Now it is saying that, in some cases, it will exclude investment spending from its deficit calculations for the purpose of deciding whether austerity is required. It should do the same for any money governments inject into their banks as part of the clean-up which is soon to get under way.
But, again, one shouldnt exaggerate the scope for fiscal laxity. Many governments have unsustainable deficits and/or debts. They cant put off the day of reckoning for ever.
Finally, the eurozone has agreed some fiscal integration. The main instrument is the 500 billion euro European Stability Mechanism. This can be used to bail out governments and, in future, banks too. But this is a limited backstop that can only be used as a last resort.
As a result, the heavy lifting remains with national governments, which need to press on with reforming their labour markets, product markets and welfare states to restore competitiveness and cut unemployment. This is as it should be because these constitute the bulk of the underlying problems.
What about Germany and the other northern countries Shouldnt they do more to help their peripheral brethren The answer is yes, sort of.
A popular idea is that Berlin should do more to boost its economy by running a loose fiscal policy or encouraging higher pay for its workers. Whatever the merits of this idea, two other policies could have a more direct benefit for peripheral economies. First, the EU should extend the single market to servicesopening up, in particular, Germanys closed market to exports from elsewhere. Second, the EU needs to spend more to combat youth unemployment. The 6 billion euros that leaders pledged to spend on this at their recent summit is, frankly, pathetic.
Even with such a raft of policies, it is not certain the eurozone can get out of its funk before the people rebel. But this is the probably the best game in town.
The author is Editor-at-Large, Reuters News