And in the current climate, crude oil prices are not likely to head below US$80 a barrel — despite growth impulses in Europe and the US weakening even further. The burgeoning demand for energy from large emerging economies such as China, India and Brazil will likely keep prices from softening any time soon. So India should come to accept the high hydrocarbon prices and focus more on improving power-generation and transport-sector efficiency, and energy conservation measures.

One factor that could change the short-term energy price scenario would be a possible break up of the euro zone. Such an event could sharply bring down commodity prices as demand collapses in Europe and its periphery.

This possibility is becoming stronger, with the markets seriously doubting the ability of European governments to implement effective measures that would reduce debt and re-ignite growth at the same time. As a result there has been unremitting pressure on sovereign bond offerings — with yields of Italian and Spanish bonds hovering dangerously close to the 7 per cent mark.

This issue was discussed at length during the recent International Capital Conference in Paris. French President Nicolas Sarkozy and other senior French leaders addressed the delegates on the evening prior to the conference. They suggested that the markets are acting irrationally, as Europe’s fundamentals are strong — and the markets’ predatory behaviour must be subject to stronger controls and regulations. But the day after President Sarkozy’s speech in defence of the euro, the markets rejected the full offering of German treasury bonds, with a yield of 1.98 per cent — higher than on US treasuries.

This should have caused alarm bells to ring and made Europeans sit up and take notice. But the mood at the dinner that evening was full of bonhomie and good cheer — in total denial of the market sentiment.

There seemed to be no concern at the possibility that markets are beginning to consider German sovereign bonds risky, and thereby perhaps accelerating the move away from the euro. This denial, it seems, reflects an apparent lack of ownership of the euro zone crisis, where every party expects the other to find a solution.

This could well be the bane of the euro zone. Everyone expects France and Germany to lead the fight to save the euro. But the two countries do not fully agree on a common approach, and differ significantly on two important fronts. First, how they view the European Central Bank’s role as the liquidity provider of last resort and second, the extent of fiscal cuts required to restore market confidence.

Germany is in a more dominant position but cannot be seen to exercise its influence to the extent required because of political reasons. While it knows the euro’s demise could also be its own undoing, Germany’s power and influence in such matters can only extend so far; it cannot effectively impose the discipline needed to restore market and investors’ confidence in the euro undertaking, for example.

While other members of the euro zone are not yet prepared to accept the situation, they may have to come around in due course. The markets, for their part, seem set on forcing a more expeditious solution — something neither Germany nor other members of the euro zone are currently prepared for. So, there is a time-sequencing problem that is leading to mounting pressure on the weakest links in the chain, which could snap at any moment.

There could well be a messy breakdown of the euro zone which the world should prepare for. For India, such preparation implies speeding up the stalled structural reform process. The reform measures that can be undertaken as executive action, and which do not require parliamentary approval, should be implemented as soon as possible.

Investor confidence also needs to be restored. India has to present a credible front in order to attract capital flows and prevent capital outflow in the coming period of heightened turmoil and uncertainty. The political class must recognise the dangers facing the economy and not let partisan interests prevent effective action. The lesson from Europe is that these are critical times. India should heed this lesson and prepare itself by pressing ahead with reforms and restoring investor confidence.

Rajiv Kumar is Secretary-General at the Federation of India’s Chambers of Commerce and Industry. A version of this article was first published here on the Hindu Business Line.