The euro is entering its "last days as we currently know it" investment bank Credit Suisse said on Monday, forecasting Spanish and Italian yields may briefly hit 9 percent and that France and Germany may strike a 'momentous' fiscal unity deal. The lack of a credible roadmap towards closer fiscal and political union has undermined investors' confidence in euro zone sovereign bonds and drastic action is required to prevent every bond market in the region from being frozen shut, the bank said in a research note from its strategy team. "In short, the fate of the euro is about to be decided," the note said while emphasising that a break-up of the single currency was still not very likely. "We suspect this spells the death of 'muddle-through' as market pressures effectively force France and Germany to strike a momentous deal on fiscal union much sooner than currently seems possible." Only in the event of such a deal would the European Central Bank give in to pressure to step up its buying of troubled euro zone government debt to prevent a systemic crisis, the bank said. The European Commission is expected to propose on Wednesday much tighter control of euro zone countries' budgets and closer economic monitoring which, if proven to work, could lead in a few years to some form of common euro zone bond Credit Suisse said this could spark a debate on fiscal union which would then gather pace, giving short-term relief to markets, but ultimately the political wrangling would exacerbate market turmoil. "Pressure on Italian and Spanish bond yields may get quite a lot worse even as their new governments start to deliver reforms -- 10-year yields spiking above 9 percent for a short period is not something one could rule out." "For that matter, it's quite possible that we will see French yields above 5 percent, and even Bund yields rise during this critical fiscal union debate."

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