As previously discussed since inception, operationally the euro zone, much like every other nation with its own currency, will, one way or another, wind up with the ECB, the issuer of the currency,
‘funding’ fiscal deficits sufficient to meet any net savings desires in that currency, as well as funding the banking system’s liabilities.

The open question has always been is how it gets from here to there, and the answer to that has never been clear.

So far it’s doing it with great reluctance, with the ECB funding the banking system and select national govts only as a last resort, and not yet in the normal course of business.

A weakening global economy now seems to be forcing the next move towards the ultimate expected outcome.

We may have reached that point where their austerity measures, rather than bringing national govt deficits down, will instead make those deficit go up, as they induce macro economic weakness which ‘automatically’ increases transfer payments and decreases tax revenues.

This is a highly unstable equilibrium condition that can accelerate into a variety of forms of oblivion, which ultimately reaches the core as default risk premiums move down the line, much like a multi car pile up as one car after another crashes into the lead pack of wrecked cars.

And as the core is threatened, holders of euro financial assets, including foreign govts that hold various forms of euro financial assets as foreign currency reserves, feel the walls closing in, as one credit after another falls by the wayside.

Only a sudden increase in world aggregate demand, or a sudden change of policy that includes pro active ECB funding, is likely to be able to reverse what’s been happening