The euro zone won’t fall apart...
The euro zone won’t fall apart...at least, not completely.
The Germans will give way. It won’t be pretty. No ‘elegant solution’ will be found.
Instead, an awkward, ugly...even grotesque...combination of concessions, compromise, and craven corruption will keep the European project together. In fact, it will be more together than ever.
Francois Hollande and Angela Merkel will find a way to preserve the union.
Most likely, the Europeans will learn from the US. They will write a huge check to member states to cover...or partially cover...the debts of the past.
The union will be responsible for the debts of, say, Greece or Ireland. It will be a scheme vaguely reminiscent of the Brady Bonds, or Alexander Hamilton’s takeover of state debt after the American Revolution, with new debt backed by the EU...of extremely long duration (long enough to allow inflation to cut down the real value of the bonds.)
The debts of the future, on the other hand, will be the responsibility of member states (lenders beware!).
Everyone can save face.
Lenders (banks) will get their money (more or less).
Borrowers can avoid disorderly defaults and bankruptcy (more or less).
And Germany and France can hold onto their beloved European Union (more or less) ...and still not be on the hook for Greek behavior going forward.