The local mainstream press still doesn't get it. Europe and its glue, the currency, is heading for a showdown and it will all happen very quickly, if, as I suspect, next week's EU meeting doesn't grasp the nettle of excessive debt across several Eurozone countries, including Ireland and inches towards an E-Bond. There's a lot of serious analysis being written but not much of it in the Irish press. Here's one today, Friday 10th December, in The Wall Street Journal outlining Europe's options. Politics is the barrier and Germany is behind it, that's why I remain very cautious about the Euro. Best case scenario: in the tension to come, Ireland, Greece, Portugal and perhaps, Spain may be afforded an opportunity to offload excessive debt that would otherwise cripple each economy, to the centre. Worst case scenario: the Euro disintegrates and Ireland has a new currency which has severe implications for cash deposits held here. To learn what steps you could take to lessen your exposure to that risk (until it's resolved), answer three questions here and we'll send you an information and action pack. In the meantime, Ireland has to deal with the social and political consequences of launching an unbearable austerity programme.

Rage is Next

Budget 2011 is, simply put, the unwanted progeny of an unbearable debt. This thing could not have been born had it not been for the decision to protect senior bondholders, blindsided by the massive scale of the hole in Anglo Irish Bank. The pain and shock of this week's budget will evolve into rage when it's crystallised in January pay cheques, which coincides with the start of a general election campaign. Heaven help politicians on the doorstep, those responsible from the ruling Fianna Fail class but also the bluffers, spoofers and chancers among the opposition parties who pretend they've a magic formula. They don't and they won't be spared.

It's the Euro, stupid

 But in the overwhelming focus of the media on the savage detail of this budget, the real story is being lost. This is the increasing possibility of the Eurozone breaking up as it divides between the German Government and the rest. Bond markets are mostly made up of big and boring pension and sovereign wealth funds but they are also populated by private banks, hedge funds and other sharks that prowl for weakness so that they can make a profit on a fall. They have their foot on the accelerator and are calling the pace of the game. That's why I think that the end game, the make or break for the Euro, is going to compress into a much shorter time period than over three to four years of austerity. Think more like next year.

Divided it Stands

The ECB and Europe's political and economic response hasn't been big enough or fast enough to deal with market doubts about the cohesion of the Eurozone. The game plan is to rely on the ECB buying up to a fifth of all the bonds issued by Ireland, Greece and Portugal. But it won't work. Meanwhile the German Government has dug in its heels on any widening of Europe's bailout fund and scoffed at any thought of sweeping all the distressed bonds into a common E-bond.

How Safe is the Euro?

In a matter of a few weeks the big question has shifted from how safe is my money in an Irish bank, to how safe is my money in Euros, in any bank and not just those in distressed economies. That's because as tensions mount in Europe over what to do, from parliamentary and media debates about; splitting the Euro, Germany leaving the Euro or Kamikaze national default, the flight of capital to safety has begun. Unless checked the result will be more bank collapses infecting even the most "solid" German and French banks because of the losses they'd make on defaulting bank bonds and national debt.

Where does it Leave Ireland?

The inevitable solution is not in further attempts to squeeze the population into open revolt, but in a negotiated and structured default. The harsh truth of the matter is that Ireland cannot and will not bear the social and political consequences of continuing this dose of internal deflation and austerity if it worsens. Remember there's another €9 billion to come, that's 1.5 times the size of this week's budget. Hey, and that's the good news. But what waits in the long grass is further deterioration in Ireland's debt to GDP, now running close to 100%. The big unknown is the scale of fresh bad debt triggered by the python-grip of the austerity. On paper, we'd be goosed, if the debt/ GDP started creeping towards 120%, but paper isn't the key.

Ultimately if Europe wants to avoid coming apart at the seams the pressure will come from the citizens of economies force-fed an austerity programme that doesn't lead to growth and job creation but instead leads to even more depression and austerity. Faced with open revolt, national Governments of whatever hue will approach the centre with a clear message; the German-inspired plan hasn't worked and cannot work, we must default, we must reschedule, there is no other choice.

The question now is how long it takes for the light bulb to go on among those who are opposed to a big solution. Perhaps Europe may yet have to rely on external intervention involving the USA and China both of whom would be damaged by a breakup of the Eurozone, but one thing is becoming very clear. The clock is ticking loudly and it's not sitting on a mantelpiece. The bloody thing is wired and it's sitting on a bomb.