Mr. Gali, like a number of other European experts, takes the view that the euro zone’s resilience has been underestimated. He says the recent convulsions are more the result of trigger-happy ratings agencies that have downgraded the sovereign debt of Greece and others in atonement for having failed to foresee the subprime mortgage crisis.  Still, he says, there is no escaping this emerging growth divide, and he points out that the mandate of the European Central Bank is to ensure broad price stability in the union, not to look out for the interests of individual nations.  France and Germany have already emerged from the recession. Business confidence in Germany, Europe’s largest economy, has hit a 17-month high.  Yet on the periphery, the hangover from more than five years of a credit-infused boom shows little sign of diminishing.  Ireland, the first economy to stumble, has taken the most severe fiscal action, cutting public wages sharply. A new Greek government, punished by the rough treatment of bond investors no longer willing to countenance soft promises of reform, is just now promising steep spending cuts. But it is not clear whether the political system in Greece will accept them.  Meanwhile, Spain, to the frustration of many major lenders, seems to be putting off difficult fiscal questions in the hope that its economy will soon recover.  Critics of the euro zone contend that weak governments in the peripheral economies, facing high unemployment and restive voters, will not have the stomach to hold down wages, pensions and public expenditures.  “Are these people serious about reform, or are they just telling people what they want to hear?” asked Edward Hugh, a British-trained macroeconomist who lives in Barcelona and has been critical of Spain’s unwillingness to take difficult economic decisions.  Paradoxically, the very dysfunction of a struggling two-tier Europe may represent the best chance for recovery if it leads to devaluation of the euro against the dollar, which many see as long overdue.  Already, in the last month, the euro has lost more than 5 percent of its value against the dollar. Many economists predict that the currency will weaken more as the growth gap between the core and peripheral states creates further disharmony.  Then, it will be the type of export-led recovery that has helped the United States and is likely to soon help Britain that could bring Europe’s economies closer to convergence.  “If there are fears now that a breakup of the euro zone will lead to weakening of the euro, then that is good news,” said Paul De Grauwe, an economist based in Brussels who advises the president of the European Commission, José Manuel Barroso. “So we should congratulate Greece for getting us out of this anomaly of having a euro that is too overvalued.”  Any such recovery will not be rapid, however. In Ireland, where prices are falling by 5 percent, reordering the economy from its deep reliance on construction and property will take years. And an already unpopular Irish government, along with others on Europe’s periphery, will have a difficult time explaining to recession-bruised voters why they must accept an central bank’s decision to raise interest rates — a move that may protect German and French savers from inflation but that does little for the many millions of citizens out of work.  Yet the painful, historic steps taken by Ireland offer a ray of hope, says Philip Lane, a professor of international macroeconomics at Trinity College Dublin who oversees the widely read Irish Economy blog.  He points to signs of wage compression in the hard-hit service, property and government sectors as proof that there is a recognition that recovery, distant as it may seem, must occur inside the euro zone, not outside.  “It takes a crisis to learn a lesson,” Mr. Lane said. “Could it be that by getting countries to change their behavior you might get improved cooperation within the euro zone?  “What does not kill you,” he added, “often makes you stronger.”  A version of this news analysis appears in print on December 31, 2009, on Page B1 of the New York edition with the headline: With Greece Teetering, the Worst May Not Be Over for Europe. Order Reprints| Today's Paper|Subscribe
The latest concern is that Greece or another weak economy might default on its sovereign debt, potentially fracturing the euro zone.