The euphoria that characterised the creation of the eurozone area in 1999 has evaporated so fast that analysts no longer see the breakdown of this monetary union as an impossibility.

2010 saw EU leaders squabbling because they could not agree on how to pull Greece from the brink of bankruptcy. They then reluctantly scrambled to create a package that should save Ireland from a similar threat. But there is a limit to how much patching can resolve the major flaws in the way the eurozone finances are managed.

The fundamental flaw in the eurozone economic model is that the monetary union can never work effectively without a fiscal union. But a fiscal union would in effect mean a political union which is simply unacceptable to the majority of Europeans. Few analysts are predicting that the euro’s troubled future will suddenly brighten in the coming year.

The EU summit in Brussels in mid-December agreed to amend the bloc’s treaties to create a permanent debt-crisis mechanism by 2013 as they struggled to bridge divisions over immediate steps to stabilise the bond markets. The markets were not impressed. The risk premium for holding debt of troubled countries like Greece, Portugal, Ireland and Spain continued to rise – a clear indication that the market has little faith in the safety net, that should be in place by 2013, to rescue weak euro countries

While the leaders were meeting, Moody’s downgraded Ireland’s credit rating by five notches and now Irish debt stands just two notches above junk status. In the same week this rating agency issued warnings of possible further downgrading of Greek and Spanish debt.

At least, this time round EU leaders spared us the happy-talk about how they are united and determined to defend the euro at all costs. Carsten Brzeski, an economist at ING Group NV in Brussels, summed up the feeling of most analysts when he said that the proposed debt-crisis mechanism “is to some extent window-dressing as it does not solve the current crisis”.

So, what can one expect for 2011? Trying to resolve the debt crisis hitting some countries in the eurozone by providing almost unlimited liquidity through the European Central Bank and the €750 billion emergency fund created in 2010 will ultimately fail to clear the uncertainty in the sovereign bonds market.

As tranches of the Greek emergency loans become due for repayment in 2013, there is a distinct possibility that the Greek economy will still not be in shape to start repayments. Even before that, many are predicting that Portugal, Spain, and possibly Italy and Belgium, may find that bond vigilantes will start demanding ever increasing risk premiums to buy their debt.

The reality is that both Ireland and Greece may have committed themselves to honouring conditions, tied to the loans that they have been given, that they cannot possibly honour. The only realistic solution could be the restructuring of the debt of these countries that in practice means that they will default. This may be too hard for proud eurozone leaders to swallow but it certainly is one sensible solution that avoids the fudging that we have seen so far from political leaders in the euro zone area.

Perhaps, more relevant to us is the determination of Germany, Britain, France, Finland and Holland to cap the EU budget for the next 10 years so that it will show no real growth. If this determination is translated into a firm budget capping, Malta is likely to see its share of cohesion funds being limited to current levels for the next 10 years.

All these developments show that it is solely up to us to guarantee our future prosperity. Ireland has shown that membership of the euro club could not save it from its own follies. Ironically, Iceland that committed similar mistakes to Ireland, but is still not a member of the eurozone, may recover much earlier because it could resort to the unpopular but effective devaluation of its currency to restore competitiveness.

So, 2011 is likely to be another difficult year for the euro. As a tiny member in this club, we can hardly do much to influence the events that will determine whether this crisis will linger on for much longer and threaten economic growth.

The wisest thing we can do is to address with more determination the structural weaknesses that still affect our competitiveness.

jcassarwhite@yahoo.com