Willem Buiter, chief economist at Citigroup, said Greece, Ireland and Portugal are all insolvent already, and Spain is close behind. The combined rescue needs of these countries is likely to exhaust the EU's €440bn (£368bn) bail-out fund, which in reality has just €250bn in usable money.
"Once Spain needs assistance, the support of the ECB will be critical. As the sole source of unlimited liquidity and as an institution that can take decisions without the need for political or popular approval, it is the only institution that can take actions of sufficient size and with sufficient speed to stave off major financial instability," he said.
Dr Buiter said the rescue packages for Greece and Ireland put off the day of reckoning. At some point creditors will have to take their punishment. While Europe is now the epicentre of the debt crisis, concerns may ultimately spread to Japan and the US. "There is no such thing as an absolutely safe sovereign," he said.
He said the ECB would have to continue propping up the banking systems of crippled eurozone states - whether it liked it or not.
So far, the ECB has purchased just €67bn of Greek, Irish, and Portuguese bonds after being instructed to intervene by EU leaders in May.
A German-led bloc of hawks on the board has recoiled from going further, fearing moral hazard and arguing that the ECB is being drawn into a role that properly belongs to fiscal authorities. It is unclear whether the policy is strictly legal under the Lisbon Treaty. It is already facing a challenge at the German constitutional court.
However, the EMU debt markets risk spinning out of control. Bond spreads surged to fresh records in a string of countries on Tuesday. The 10-yield reached 7.3pc in Portugal and 5.7pc in Spain, levels that can quickly set off debt spirals.
There was a whiff of systemic contagion as Belgian yields blew through 4pc, drawing unwelcome attention to a country that has not had a government for five months and appears to be sliding towards Flemish-Walloon dissolution.
"The big change is that Belgium has gone from being the weakest of the strong group to the best of the weak group", said Koen Van de Maele from Dexia.
Most alarming is the surge in Italian yields to 4.7pc, raising fears that the world's third biggest debtor, with more than €2 trillion of outstanding bonds, could be drawn into the maelstrom.
Peter Westaway from Nomura said Rome's woes will force the ECB to act at its meeting on Thursday. "We think the increase in Italian spreads has had a major impact on markets and will prompt the ECB this week to begin purchasing mainly Spanish and Italian bonds in significant amounts, for as long as it takes."
Arturo de Frias, from Evolution Securities, said the eurozone will have to move rapidly to some sort of fiscal union to prevent an EMU-break up and massive losses on €1.2 trillion of debt lent by northern banks to the southern states.
"Our gut feeling, we are now witnessing one of the biggest tug-of-war games ever: a 'European Union bond' is needed in order to save the euro."
"Angela Merkel will not sign on the dotted line until there is a lot of blood in the bond markets and she is seen as having absolutely no choice. The market will keep selling until the yields of Spanish and Italian bonds (and perhaps Belgian and French also) reach sufficiently horrendous levels. The question is: what is the 'sufficiently horrendous' trigger level: 6pc yield for Spain? Or 7pc? Perhaps 8pc?" he said.
Fiscal union - with a euro-bond, de facto EU treasury, and debt union - is a vast political step. There is no popular support in Germany for what amounts to the end of the nation state, and Mrs Merkel has not made any move to prepare the ground. It would require a fresh EU treaty, agreed by all EU members.
It is just as likely that Germany will conclude that having absorbed its fellow Germans in the East at exorbitant cost, it cannot undertake the same burden for an area six times the size.
No German citizen was given a vote on whether they wished to give up the D-Mark, and they were given a pledge of honour by their leaders that the euro would never lead to the circumstances now facing their country. The politics of EMU have turned very sour.
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