Euro Debt Crisis: Eurozone Lifeline Depends on the European Central Bank

For the Eurozone, so far, survival seems like an all European Central Bank (ECB) affair now

From Reuters, (bold emphasis mine)

Euro zone banks' demand for central funding surged to a two-year high on Tuesday, and U.S. funds cut their lending to the bloc's banks, tightening a squeeze that looks unlikely to ease this year.

Fast-spreading sovereign debt worries have left lending markets virtually frozen and the European Central Bank as the only available funding option for many banks.

The ECB's weekly, limit-free handout of funding underscored the widespread problems, with 178 banks requesting 247 billion euros, the highest amount since mid-2009.

Just as fears about the financial health of Italy and Spain have stopped banks lending to some their peers, U.S. funds have also continued to retreat from the region, and Italian and Spanish banks have seen corporate deposits flow out to safer havens.

U.S. money market funds, which are key providers of liquidity to banks and have been pulling back from the euro zone since May, cut their exposure to European banks by a further 9 percent in October, according to ratings agency Fitch.

Bankers said there appeared little chance of wholesale funding markets reopening for euro zone banks this year, and the best that can be hoped is for a return to more normal conditions early in 2012.

"The reality is it's hard to see investors get any confidence (before the end of the year), as the sovereign crisis is out of control. Confidence has disappeared from the banks as they are a conduit for the sovereigns," a senior debt market banker said.

There are several warning signs flashing for euro zone banks' liquidity, limiting options and raising borrowing costs, leaving the European Central Bank as the only option for many of them.

Current dynamics exhibits that either the ECB will tolerate the markets to find the necessary (most likely disorderly) adjustments or the ECB will have to unleash a tsunami of money printing.

Of course printing of money just delays the inevitable.

Nevertheless the mainstream continues to prescribe snake oil therapies as more inflationism and more centralization of the EU via a political union.