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Patrick Allen on Europe
CNBC.com | December 01, 2011 | 02:32 PM EST

1. Euro zone debt crisis will get a lot worse.

As we enter 2012 the euro zone debt crisisenters a new dangerous phase in which money markets will freeze up. Fixed income analysts tell me they have gone from being very worried to “terrified” in the last few weeks. Inaction by the EU and ECB has driven up funding costs and increased the probability of core European nations like France being dragged into the crisis with only Germany or the ECB now able stop a run on the banking system and liquidity crisis . In the absence of major, big bazooka like intervention, the real crisis will hit in January 2012.

2. Weak banks will fail.

As the weakest institutions come under pressure, national authorities in the euro zone and beyond will have to take control of a number of banks. The cost of this, added to the liabilities being passed from the private the public sector, will add to the sovereign debt crisis . Like the Lehman Crisis in 2008 , there will be major casualties that we cannot yet predict. The big question is who will be AIG in 2012?

3. The EU will act at the last minute.

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