On May 10, EU Monetary Affairs commissioner Olli Rehn announced an unprecedentedly large package of measures totalling 500 billion euros. This, he claimed, represented an indication that the ECB would ?defend the euro, whatever it takes.? This was combined with an announcement that the IMF had pledged an additional 250 billion euros to help supplement the amount.

Despite the large amount of cash that has been put on the line by the members of the EU, the euro has now entered a very precarious period. There are two issues involved. First, there is the question of whether a currency union of such a large scale can be feasibly sustained without member countries having to concede a large portion of fiscal autonomy. The answer seems to be no?as we have seen, there are situations in which economic shocks, experienced by one or several members of the euro zone, force unpalatable choices to be made by the citizens of other members of the euro zone.

To see this, think about the voters of the German province of North-Rhine Westphalia. To feel comfortable investing their hard-earned money in securities linked to the future earnings prospects of the citizens of Greece, there must be some quid pro quo in the form of measures to reassure them of the ability of the Greeks to repay. Of course, the usual argument is that it is in the self-interest of the Greeks to repay since the alternative is financial disaster and the resultant decline of Greek output. But evidence indicates that these output costs are generally low. Furthermore, the possibility of electoral uncertainty exacerbates the time-inconsistency problem, since agreements made with the current government may not be honoured by their successors.

Another possible line of objection is that Greece may fear being shut out of international capital markets in the event that they default. However, empirical evidence indicates that most defaulters are shut out of capital markets for very short periods of time, if at all. And in this particular case, almost by definition, euro zone members cannot shut down access to capital markets by other euro zone members without dissolving the common currency or expelling the offending member.

The second risk factor for the euro zone results from the process by which countries? data are certified to be correct. While Eurostat seems to be trying to do a good job of holding member countries to account, in the words of the EC report of January 2010, ?intense scrutiny of the Greek fiscal data by Eurostat since 2004… have not sufficed to bring the quality of Greek fiscal data to the level reached by other EU Member States.? This issue has now returned to generate massive stresses on the economies of Germany and France in particular, since there were spectacular revisions in Greek budget deficits (four times higher than those reported in Spring 2009) reported in October 2009. In other words, even after six years of sustained effort by the EC, they are unable to certify even basic statistics about the Greek economy. Short of giving the EC power to produce these statistics by taking a hand in compiling them along with the Greeks, it is unclear what more they can do. This is another marker pointing out that some level of supra-national authority is necessary to ensure that fiscal discipline is followed by euro zone members, or even to ensure that they are telling the whole truth about the state of their individual economies.

So we?re led inevitably to the imposition of fiscal control mechanisms that allow one euro zone member to dictate terms to another. This is where the issue gets even harder to think about. For the citizens of Greece to feel comfortable with the imposition of such austerity measures by the citizens of other nations, there must be, in my view, very strong cultural reasons to tie these nations together. And it is by no means clear that those reasons are strong enough to assuage the pain experienced by Greek citizens due to increases in the retirement age by a minimum of two years, among other difficult measures.

The next natural step on this road would be political union. While this is a possibility that we should not dismiss out of hand, the reality is that it is a remote possibility. It?s certainly not going to happen any time soon, if at all. In the interim, we?re left with more questions than answers about the fate of the euro zone. I wouldn?t be surprised to see the departure of at least some member countries from the euro zone.

?The author is a financial economist at Sa?d Business School, University of Oxford