THE taboos are falling by the wayside: first it was haircuts, then default, now, rumours are leaking out that a full euro break-up is on the cards.
The prospect is viewed with such horror by markets that they have gone into the same mode of denial usually reserved for Brussels’ top Eurocrats.
Despite mounting evidence to the contrary, most investors are betting that Europe’s political elites have the wits and the will to get us all through this.
This assumption is not completely irrational: if it wanted to, Italy could announce a €50-100bn (£43bn-86bn) privatisation programme tomorrow and shrink its debt pile at the stroke of a pen. The €5bn asset sale scheme on the cards won’t cut it, however.
And unlike Athens, Rome has sufficiently credible institutions that a determined government prepared to withstand the inevitable riots generated by a cut-price asset fire-sale could restore confidence very quickly.
But what if this best-case scenario fails to materialise, like all the other grand plans mooted in the past year? Are there any options left for the euro?
Bluntly put, not many, and there is one person calling the shots: German chancellor Angela Merkel (pictured).
As one City analyst put it to me, Germany simply has to pony up one way or another.
The unappetising choice is between a euro break-up that will bring down large parts of the continent’s banking system, requiring the mother of all bailouts, or firing-up the ECB’s mega printing presses to find the cash for sovereign bailouts.
The banking system is incapable of withstanding a currency break-up because it would essentially amount to French and German lenders taking immense write-downs on some $2 trillion of loans made to firms in poorer countries.
In normal circumstances, a prudent French bank lending cash to an Italian company would have hedged its exposure with a currency swap. But if the lira suddenly reappears now, devaluing all of those assets, the French creditor has no hedge in place. The capital hole will be in the hundreds of billions.
Unfortunately, the other option has a similarly ghastly side effect, to German eyes: inflation.
But Merkel might as well make the courageous choice – after all, neither option is consistent with re-election.