Nature abhors a vacuum...

...and there will be rather large aperture in the Euro area.

The unfortunate thing from a pro-EU viewpoint is that even if the PIGS somehow avoid severe austerity measures through the largess of their northern neighbors, resentment and further deterioration of government in Brussels seems likely.

As I have said time and time again, economic stress forces sovereigns to analyze issues through a lens of power and weakness. Hard Realpolitik as opposed to more fuzzy standards of fairness or Sichlichkeit.

Consensus is a relatively easy objective in bountiful economic times...but we have seen the "regression" to populism, mercantilism, jingoism, etc. in order to convince an angry populace that:

1. The sovereign is not responsible for the current state of things
2. The sovereign WILL fix the problem
3. The sovereign CAN fix the problem.
4. If elements (2.) and (3.) turn out to be false see (1.)

These elements of course add up to "tails we win, heads you lose", as a myriad of excuses can be used to deflect blame from any of the three elements above.

And of course, armed conflict is also possible and why no-one seems willing to discuss this (albeit small) probability is interesting. European solidarity seemed carved out of stone in the early 20th century via political alliances. It seemed on steady ground for decades with economic alliance, but this experiment will prove no less futile and my ardent wish is that it not accompanied by loss of life and destruction of infrastructure.