Predictions that the euro zone will face little more than a shallow recession in 2012 increasingly seem to be wildly optimistic.

FORBES: Nothing to Be Thankful for in the Euro-Zone

But if no agreement can be reached on how to enact such plans, the euro zone will face a "severe and fundamental challenge, " he added.

WSJ: Tony Blair: Euro is at a 'Final Decision Point'

Assuming bondholders stand firm, then euro-zone governments face a straight choice: Either they step in to take a share of the losses for the first time in the crisis or they allow Greece to default, something they have fought hard to avoid for the past two years.

WSJ: Agenda: Greek Situation Is Most Serious of Latest Euro Crisis