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For Jean-Claude Trichet there will be no gentle wind-down before his retirement. The eurozone debt crisis has assumed a punishing intensity in recent months, stretching the skills of even veterans of financial market crises such as the European Central Bank president.

As he prepares to step down on October 31, the future of Europe’s monetary union remains unclear. Possibilities that even a few months appeared slim are no longer ruled out.

German politicians speculate openly about Greece defaulting or even leaving the eurozone. Financial markets fear a return of the paralysis that struck after the collapse of Lehman Brothers in late 2008.

Europe’s economic integration could also be thrown into reverse. Conveying the drama of the moment, Angela Merkel, German chancellor, warned the Bundestag this month that the euro was more than just a currency. “The euro is a guarantor of a united Europe, or put it another way: if the euro fails, Europe fails.”

For now, much lies in the hands of the ECB. With its theoretically unlimited firepower and ability to act rapidly, the ECB is the final backstop for the euro.

As broader worries emerge over the strength of eurozone banks – at a time when economic growth has stalled across the region – the ECB has become the sole institution capable of calming financial market nerves. But the resignation this month of Germany’s Jürgen Stark from the ECB’s executive board highlighted internal divisions over crisis management strategy, especially the ECB’s controversial bond-buying programme.

Germany’s conservatives fear the ECB’s actions have undermined its independence by straying into fiscal policy, threatening its credibility and ultimately the battle against inflation.

A turning point came in July. The debt problems of Greece, which lay behind the original outbreak of the eurozone debt crisis, had intensified once more. Eurozone political leaders agreed that a fresh bail-out plan was needed, but Germany successfully led a push for private-sector banks to share some of the burden. Its principled point was that taxpayers should not foot the bill entirely, even though credit rating agencies warned any signs of coercion would result in Greece being deemed in default – and the ECB warned that it would send a disastrous signal to investors in other eurozone countries.

At their July 21 summit in Brussels, eurozone leaders insisted their plan for Greece would be “exceptional and unique”. They also took other steps to alleviate its finance by slashing the interest rate payable on bail-out loans and extending their maturity. Similar help was given to Ireland and Portugal.

Nevertheless, investors took fright. By early August, the market borrowing costs of Italy and Spain were reaching worrying levels. The ECB faced a dilemma. It wanted Rome to take bold action to address the crisis but feared a financial meltdown.

After a tense weekend at what should have been the height of the holiday season, the government of Silvio Berlusconi announced a series of structural and fiscal reforms.

On Sunday August 7, Mr Trichet said the ECB would “actively implement” its bond buying. Within hours, it had started the large-scale buying of Italian bonds. Rome, however, has yet to convince markets of its commitment to reducing public debt; Italy’s position as one of the eurozone’s largest economies magnifies the significance of any perceived default risk.

Meanwhile, fears of a full-blown Greek default have escalated, and worries over sovereign debt holdings have fuelled fears about the financial strength of banks across the continent.

Eurozone governments, meanwhile, have yet to implement another step agreed on July 21 – boosting the powers of the European Financial Stability Facility, the bail-out mechanism set up a year ago.

As well as supporting crisis-hit countries directly, the ECB is hoping the EFSF will soon be able to take over its role of intervening in eurozone bond markets. But cumbersome operating procedures and disputes between national capitals could hamper its effectiveness.

There are not many bright spots. Whereas Greece has failed to meet targets set under its international bail-out, Portugal’s programme ap­pears to be on track, and Ireland even shows signs of making a comeback, helped by export growth.

But overall, the eurozone economic recovery has stalled. In the second quarter, gross domestic product expanded by just 0.2 per cent compared with the previous three months.

Gloom about global prospects, including in the US, as well as fiscal austerity measures and eurozone debt woes have led to falls in business and consumer confidence. Forward-looking purchasing managers’ indices hold out little hope of a growth rebound in the second half. Weaker growth will hit the banks further.

The ECB has so far averted disaster. As well as its large-scale bond purchases, it has continued to provided unlimited liquidity to eurozone banks. But it is proving to be a fateful autumn for the eurozone.

Copyright The Financial Times Limited 2017. All rights reserved.

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