I didn't explain clearly in the last post why I think the Euro will survive, so here goes.
The Euro is a political project first and an economic one second. This is both a strength and a weakness. It is a weakness because there will always be a reluctance for individual nations to commit financially to the project. So the stability and growth pact was broken - even Germany and France failed to stick to the rules on borrowing, yet alone the 'club med' countries.
There was never a recognition (or large enough central fund to redistribute) that could cope with very different economies, cultures and languages. This was always going to restrict the mobility of labour needed to allow for a single market/currency zone. But it is also a strength because ultimately when it comes to the choice between a united Europe or a fractured one, from Italy to France, Germany to Spain they will choose the former. Germany certainly played a brinkmanship game over funding Greek debt but it had too much to lose by any country leaving.
And that is the crunch, leaving the Euro wouldn't solve any debt problem. Yes they could devalue but the power to set your own interest rates is overstated. Interest rates would still follow the major economies anyway (that is why from the US to EZ to UK rates only vary 0.5%. The costs of leaving the Euro would be astronomical. The markets may wish for a Euro crash, but it just ain't going to happen. Cameron has just bet the UK economy on a Euro collapse. Both him and his Daily Mail, Murdoch Tories are going to be sorely disappointed and every Brit except perhaps a few hedge fund managers are going to suffer as a result.
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