“We wish you well”, that is what British Prime Minister Cameron said during European Summit last week, when he is the only one refusing to agree the new EU treaty. He went even further saying “As long as I am the Prime Minister, this country will never join the euro!”

In my early blog of Four Potential Scenarios of Eurozone Debt Crisis, I said “the only solution to all crises has to be some form of unity. However, that is always the hardest thing to do in the mankind history.” The European summit clearly demonstrated the frictions between each parties and the difficulty to move forward with different agendas.

As Mohamed El-Erian, CEO of PIMCO, said in his CNBC interview,

Every week, if not every day, Europe influences stocks, overwhelms sector-specific news, and frustrates careful security selection. The result is wave after wave of manic risk on and risk off days, together with spiking correlations and unsettling volatility.

You must be wondering why these economists and government officials seem have no clue what is the right thing to do. The simple fact is, euro problem is unprecedented.

There was never euro before 1999 in the history. While western financial and political decisions are largely built on studies from past events, the euro problem becomes an experiment which is the study subject by only the future. Now, any prediction about where the crisis is going to is merely speculating or at best guessing.

Some central banks in Europe have started weighing contingency plans to prepare for the possibility that countries leave the euro zone or the currency union breaks apart entirely. The break of euro is no longer unthinkable.

I guess “we wish you well” is really probably the best we can say now.

I came across this report from Mike Story, Economist at Western Asset Management discussing four potential scenarios of Eurozone debt crisis

Scenario 1: No Eurozone Restructuring

This is the most optimistic scenario. All 17 members remain within the eurozone.

Scenario 2: Orderly Eurozone Restructuring

In this scenario, policymakers (European Central Bank officials and European finance ministers) battle the market in an effort to ensure stability.

Scenario 3: Disorderly Eurozone Restructuring (unlikely, but possible)

Policymakers are reactive, not proactive. Greece and Portugal give up on austerity, and they default.

Scenario 4: Eurozone Implosion (extremely unlikely)

A Lehman-like scenario occurs in which things spiral out of control and emergency policy responses fail to materialise. Events occur so rapidly that policymakers are unable to respond quickly enough.

In my view, the biggest risk is the indecisiveness of the policy makers. As I commented on Sep 20 when S&P Cut Italy’s Credit Rating from A+ to A, Having been “missing in action” for so long, policymakers still do not seem to get the clue. It becomes increasingly challenging to regain control of this rapidly deteriorating global economy.

If you ever watched movie “2012“, you know the only solution to all crises has to be some form of unity. However, that is always the hardest thing to do in the mankind history.

You can Read the full report here.

According to Bloomberg, Italy’s credit rating was cut by Standard & Poor’s on concern that weakening economic growth and a “fragile” government mean the nation won’t be able to reduce the euro-region’s second-largest debt burden.

“The rating was lowered to A from A+, with a negative outlook. S&P said Italy’s net general government debt is the highest among A-rated sovereigns, and the company now expects it to peak later and at a higher level than it previously anticipated.”

The euro debt crisis just becomes worse and worse and many efforts in the past have seen go down to the drain.

In my opinion, probably the euro central bank has made the same mistake as most of the investors, Loss Aversion. The debt problem has lasted more than 2 years but no decisive action was taken.

It is just like an investor who bought a company share and has been watching the price dropping lower and lower. He was so afraid of cutting lost and just prayed every day that the price would come back. Sometimes, the investor would buy more shares hoping to average down the price but all the additional money just mounted the losses.

Surely cutting loss is painful, but first cut is always the best cut.