Why Politicians Are Helpless In Euro Crisis

Such is the scale of the eurozone's problems, Fitch ratings has dashed any hope that Angela Merkel might do a Wonder Woman twirl and unleash a Big Bazooka with enough financial firepower to end the debt crisis once and for all.

"Fitch has concluded that a 'comprehensive solution' to the eurozone crisis is technically and politically beyond reach," it said as it warned Spain, Italy, Ireland, Belgium Slovenia and Cyprus that their credit ratings would soon be downgraded.

The "positive commitments" made by European leaders towards more disciplined borrowing and spending limits agreed at last weekend's summit were welcomed.

But even in the unlikely event of the eurozone's 17 members coming together in a United States of Europe style union, in which richer states subsidised the poorer, its credit rating would still be far from perfect.

That is because the backbone of Europe's financial infrastructure, the European Central Bank (ECB), still cannot and will not do what the Bank of England and US Federal Reserve can - lend money to their own governments in case of emergency.

It is what people in the know call a "financial backstop".

And while the ECB has been giving emergency loans to the region's banks to help them weather the debt storm, Fitch said its "continued reluctance to countenance a similar degree of support to its sovereign shareholders" is holding back recovery and until something changes the "crisis will persist and likely be punctuated by episodes of severe financial volatility."

"In Fitch's opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States."

It is certainly not the first time that the ECB has been called upon to act this way.

Most central banks do, and in principle it costs nothing because they have the power to create new money out of thin air.

An obvious solution you might think.

But Germany does not think that way - having twice experienced periods of hyper-inflation in the 20th century after its central bank engaged in similar activity - and its refusal to entertain such ideas is arguably the clearest illustration of who calls the shots in the eurozone, in case you had been left in any doubt.

The ECB is based in the second German city of Frankfurt and the conservatism of its policy was demanded by Germany as a key plank of the eurozone's architecture, whose many flaws are now clear to see.

Observers are constantly looking for clues in the rhetoric from the German government and the ECB's governors that change is on the cards.

Some hoped that the strict new rules on borrowing and spending agreed by Europe (minus Britain) would do enough to placate German voters, in whose mindsets memories of hyper inflation remain fresh, to convince them that unleashing the potential of the ECB is the only solution.

So between now and March 2012 when the new intergovernmental treaty - The Fiscal Compact - is due to be ratified, expect bickering and grandstanding between the 26 countries who have said they are willing, in principle, to sign up.

Expect more market turmoil and various crunch points at which Italy's borrowing costs will escalate to levels at which many will say a bailout is inevitable even if there is not the money in either the IMF or EFSF to pay for it.

While the flames of the eurozone debt crisis continue to burn with the smoke choking off the global economic recovery, the politicians are debating how to fireproof the single currency against a repeat of the crisis.