What is a risk-free rate debt instrument denominated in euros? Financial market participants are beginning to ask this question in earnest and are not happy with the answer: there isn’t one. Only the European Central Bank (ECB) has unlimited authority to create the European currency, not Greece, not France, not even Germany has that power. The result is that the specter of default has traveled from the periphery to the core nations of the European Monetary Union. Buyers of euro-denominated debt have been rethinking their purchases, as witnessed by the lack of demand for German bonds at auction last week. The solvency issue can only be resolved by the ECB (perhaps utilizing the IMF) stepping in as buyer of last resort for EU debt. It seems that enough pressure has mounted for Germany to concede the need for tighter fiscal union among the EU member nations and for a common debt instrument to be created that is backed by the unlimited resources of the ECB, but the political necessities of this arrangement will be very difficult to overcome in a timely manner.