Reports in Italy yesterday suggest that the IMF is preparing plans to grant IMF credit to both Italy and Spain - click here. It is somewhat ironic for me that a Bretton Woods institution is going to rescue two of the largest economies in the Eurozone.
According to UBS's head of foreign exchange strategy:
“Fixed income investors are betting that either Germany moves towards a fiscal union with its eurozone partners or that, without the ECB willing to buy unlimited amounts of sovereign bonds in the secondary markets, the eurozone will break apart.” (quote from Daily Telegraph - full text here).
As markets move faster than politicians (especially EU ones), a break up is much more likely than closer fiscal union.