Jan. 23 (Bloomberg) — There are two main schools of thought on what may happen next with Europe’s debt crisis. Some well-informed people strongly believe that everything will work out just fine, and without much of an economic slowdown. Other, equally well-informed people believe just as strongly that the euro area will break apart in a traumatic manner. When it comes to predicting Europe’s future, not many people occupy the middle ground.
The two poles now agree that the severity of the crisis largely comes down to Italy and the European Central Bank. The optimists argue that Mario Monti will save the day. Not only will Italy’s new prime minister push through some reasonable austerity measures, the optimists insist, he will also persuade Germany not to demand yet more budget cuts. The sympathy and support of the German government matters a great deal, primarily because of its influence with the ECB.