It is worth reflecting on the fact that it is easier for strong economies to leave the union than weak members. This suggests that one option for the euro zone that must be taken seriously is that it could break apart into a "strong euro" group of economies and a "euro-lite" area that could devalue if necessary to improve competitiveness and encourage economic adjustment.

Most certainly it is time for some serious rethinking of the euro zone, and the next few years will be make or break time. The club rules have to be realistic and strongly enforced but a new regime must include smarter economic analysis as well as tougher policing and penalties if it is to work well. And new ideas for the way forward will have to be considered. Euro zone governments might not like financial markets but they cannot ignore them. As European Central Bank head Jean-Claude Trichet has been reported as saying recently, it is member states' governments, not markets, which have brought the euro zone and the euro to this critical juncture. This already hints at the likelihood of more fractious relations across the euro zone and the probability of contentious new steps being taken.

The view from abroad

Finally, it is important to consider how this European debt crisis will impact opinion, not just within the euro zone but around the world. And how do other countries view the situation and how might they react? Key relationships may be affected.

Firstly, to most observers, this crisis will appear both complicated and a failure for the euro zone. The protracted negotiations before the Greek bailout were already damaging for confidence but the problems that followed were even more troubling, including what some may see as the Europeans using their dominant position to charge part of the EMS bailout fund to the IMF, imposing costs on other countries outside of Europe. This may have repercussions.

Secondly, within the international monetary system, holdings in the euro are probably falling, with money moving into the obvious alternative, the dollar, which a short while ago was out of favor. Such swings in sentiment will serve to accelerate efforts to diversify foreign exchange holdings and create more reserve currencies. The anticipated greater role for Asia, specifically the renminbi (yuan), may be pushed forward.

Thirdly, there may be a shake up of alliances within Europe. Among the new EU member states, Poland has adopted the view that euro membership may not be such a good idea. Certainly there is likely to be a wait-and-see approach given the current situation and the potential for euro zone members to have to pay an ever-larger bailout bill. The group of EU countries outside of the euro will consolidate to watch over their mutual interests while within the euro area, countries may split into a faction chiefly concerned with applying fiscal vigor and the euro rules and another keen to use the crisis as an opportunity to press for further EU integration. There are at least these three important groups centered broadly around the UK, Germany and France—each with different views and agendas. There is likely to be a difficult and contentious period ahead for Europe.

In addition to this, the euro zone crisis has highlighted the need for countries around the world to rein in high budget deficits and debt—most especially those dependent on foreign investors. This includes the United States, although it is currently benefiting from the flight from the euro. Deleveraging must continue and will depress the growth outlook. The aftermath of the global recession and efforts to combat this will continue and, in one way or another, taxpayers everywhere will not be free of the costs of the war on recession for some years to come.

The author is a senior research fellow of international economics at the London-based Royal Institute of International Affairs

(Viewpoints in this article do not necessarily represent those of Beijing Review)