Currently there is such a spread in wealth, and the ability to survive economically, between countries in the EMU that it is unsustainable, IMO.
It seems in the EMU you have countries holding their own (Germany, France, Belgium, et al), and countries who are flat-out broke (The so called PIIGS: Portugal, Ireland, Italy, Greece, Spain). Of those holding their own Germany and France are obviously the big players and the only ones who could possibly have spare funds to bail out Greece.
But to bail out one sets a dangerous precedent for the others. If Greece is saved, why shouldn't Spain or Ireland? And make no mistake, there is a good likelihood of all of them needing help in the next couple of years. I think this is forgotten or ignored by many outside of the situation.
For all sides it seems like a terrible choice. For Germany, bail out Greece and then have to do the same for others, possibly bankrupting yourself as well. Or don't bail any of them and watch as the whole "Club Med" region falls into a deep depression and all of its nasty historical effects. I suppose it is possible the decision could be made to devalue the Euro by inflation of money supply, although this would also have terrible effects on creditor nations within it such as Germany. So what if you receive payments on the loan you own when the currency is worth a fraction of what it was when the loan was originated?
The PIIGS are locked into the Euro and cannot devalue their currency, EU countires not in the monetary union have a clear advantage in this regard should they need it (Sweden and UK for example). Greece and the others may decide "defection" from the Euro as a currency is the lesser of all the painful options. Default on debts and revert to their own currency and it will be basically worthless outside of Greece. But their exports and tourism will pick up and consumption of imports will drop dramatically. A relatively short period of acute pain versus longer suffering as they become an undercalss of the European continent and locked into the Euro. What happens with Greece will be very telling.
If things with Greece do not go the way the German government thinks it should, they instead could be the one who jumps. That was the basic idea of the article. Basically pull out and let their neighbors rot. Nationalism was not eliminated by the EMU, nationalism is another aspect discounted by many when it comes to this ongoing crisis.
Greece was downgraded to "Selective Default" by S&P last night.
UPDATE: S&P Downgrades Greece To Selective Default, Cites CACs - WSJ.com
Not sure what the trigger is to force the payout of Credit Default Swaps. No one really knows how many billions there are of these or who holds the ultimate repsponsibility of paying them in the event of a government default. Consensus I read is conservatively in the $300B range, but with the interlinking of banking all over the world it is almost impossible to get a certain figure.
Now Greece is hoping to trade $200B of their (likely) worthless government bonds with others equally likely worthless bonds. If they cannot, default or another round of bailout is their only real options. But Germany is taking a hard line with Greece as it knows if it continues to bail them out there are other countries within the EMU also wanting to be bailed out. Spain and Italy have GDP in the top 20 in the world, they are simply too big to be bailed out.
the CDS payout event is triggered (I doubt an S&P downgrade to selective default is the trigger threshold), this could set up a cascade effect that could ripple through all world banking including the US.
March could be interesting in the Chinese proverb sense.