Merkel and Sarkozy met earlier today, with both parties once again agreeing to work together to develop closer fiscal integration, arguing that deficit reduction is the way forward. For even a casual follower of the Eurozone crisis, this is not really news.
More interesting, perhaps, was Merkel's additional comment – that the next tranche of Greek aid cannot be paid out unless there is progress on negotiating the aid package –hints at just how close we could be to a Greek exit from the Eurozone.
Last week I blogged about EEF's central, best-case and worst-case scenarios for the UK economy in the year ahead. Needless to say, the outcome of the Eurozone crisis was a key variable.
But how might the different outcomes of the Eurozone crisis affect the Eurozone itself?
Other forecasters have suggested a best case scenario – a quick resolution which shows determination to hold the currency union together and allows the ECB to inject significant amounts of liquidity – would improve growth prospects in 2012. PWC say that in these circumstances, the Eurozone could grow by 1.5% (our central forecast is zero growth in 2012).
At the other end, PWC's worst case scenario would be for a Eurozone split, with the core retaining their currency and the periphery countries adopting different policies. The core countries could see modest growth in 2012, while the remainder would experience a significant GDP contraction of 5%.
But some forecasters are even gloomier. For example, ING offers up a doomsday scenario, with a total breakdown of the Eurozone leading to a contraction of 9% across the area.
Let's hope it doesn't come to that.