Europe is approaching the end game -- credit markets and other governments know what its leaders won't admit: that the euro is failing. And gold, more than the U.S. dollar, is set to rocket in value as the crisis unfolds.

In addition to looser monetary policy -- generous European Central Bank purchases of member country bonds -- and austerity -- higher taxes and less spending -- across most of the EU states, eurozone governments have a three-pronged policy for avoiding a contagion: the European Financial Stability Fund to purchase and insure bonds of troubled governments; International Monetary Fund supervision of finances for those governments; and direct loans to several and in Greece's case, a 50 percent haircut on private debt.

None of those three policies are working.

Even with the haircut for private bondholders, Greece will have a debt-to-GDP ratio of 120 percent a decade from now, if everything goes right. Virtually no independent economist expects things to go that well and most regard the situation as wholly unmanageable.

In 2012, eurozone growth will be near zero or the continent will fall into a serious recession. With the austerity imposed by the bailout on Athens, the Greek economy will almost certainly contract substantially, and unemployment in Greece, now at 16.5 percent, could easily increase into the low 20s or even double.

The crippling effects on tax receipts and demands for social assistance would thrust Greece into a second default, imposing even greater losses on private creditors -- private creditors are likely to get only 25 cents on a euro, if that much, when the music stops.

Much like a tropical depression incubating into a terrible hurricane, the Mediterranean contagion is likely already under way. Borrowing rates on Italian debt are nearing what financial analysts and economists view as the tipping point -- 7 percent. Investors are correctly nervous that Italy, too, will renege on a portion of its private debt and the fall of the Berlusconi government only makes their uncertainty worse.

A massive bailout from Germany with contributions from France and smaller northern states will ultimately be needed or Italy would follow Greece into default. Such a bailout isn't likely manageable given the resources and political climates in these countries and the collapse of Italy would mark the end of the euro.

ESFS was established to backstop governments, like Italy, by purchasing some of their debt and offering private investors some insurance on their bonds. Initially, established with more than $600 billion in contributions from eurozone states, the fund cannot find private investors who will purchase its bonds at affordable interest rates, or backers among sovereign governments with available cash outside Europe.

Simply, private investors and other governments, notably cash-rich China and other big exporters, expect Italian and other European sovereign debt to fail. They are concerned the euro will simply implode all together and then no European government will have both the resources and inclination to stand behind the ESFS's failing bonds.

With the implosion of Italy, Portugal and Spain wouldn't be far behind and French debt will come under closer scrutiny.

At that point, investors will stampede from the euro-denominated debt of most governments. However, with rates so low on U.S. treasuries and too little Japanese and Chinese sovereign debt in open circulation, gold would become the asset of choice.

Moreover, all this could easily unfold as the supercommittee in the U.S. Congress races to a stalemate on an acceptable combination of tax increases and spending cuts. With such dysfunction in Washington, investors would realize that U.S. debt, though still manageable, is racing to an unsustainable level mighty fast and would start fleeing treasuries.

At that point, nothing is left but gold. Now trading at about $1,800, it could zoom right past $2,000 to $3,000 an ounce.

(Peter Morici is a professor at the Smith School of Business, University of Maryland School, and former chief economist at the U.S. International Trade Commission.)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)