Dead euro walking
I’m going to call it now. The euro area as we know it today is finished, and will survive only among stable, highly industrialized EU economies — DE, FR, IT — while dying in most of the Mediterranean.
Most econ commentators now admit this is a possibility, but Nostradoofus foretells that it is a near certainty, and sooner than we think. Single digit years at most.
The reason is simple self-interest. Peripheral EU states joined the euro to borrow more cheaply. If they can no longer do so, and if the price of membership is now fiscal agony, then the euro has nothing to offer them but deflation and 20% unemployment.
Greece’s leadership has a long tradition of acting in its own short-term interest: profligacy, excessive borrowing, etc. We have no reason to expect a change in that culture, so at this point, what is in Greece’s short-term interest? Default on the euro debt and leave the currency union. Hence that is the most likely result.
Once that door is open, other heavily indebted hangers-on are likely to leave, e.g. Portugal.
I’m looking forward to a brief window of inexpensive vacations in Santorini.