The Euro endgame is now on. And for the first time since this whole saga has started I see the likelihood that something is going to give soon as higher than the whole Eurozone staying together. It is not a forgone conclusion but it is hard to see where the political impetus to decisively change course is meant to come from before the political feedback to the failed European austerity strategy is going to derail the whole show.
1. Greek euro exit, very possibly next month.
2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.
3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.
3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.
4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:
4b. End of the euro.
What can still be done to avoid disaster? As Greece moves towards a second election the only real asset is that the vast majority of Greeks still want to stay in the Euro. The EU Council meeting on 23rd May needs to change course and give the pro-Euro political parties something to work with (a programme for growth and jobs above all). The Greek state has to be rebuild from scratch as people more knowledgable about the country than I am tell me and this cannot be done over night and whilst in an economic depression with record unemployment levels. It looks more like Greece is in for a decade of structural changes and rebuilding.
If the pro-Euro parties can present such a change of course to the people and the election is boiled down to the question that is effectively underlying the poll: Does Greece want to stay in the Euro? Then, maybe then, there is a chance to set Greece on a workable political trajectory and keep the Eurozone together.
If such change is not on offer we might see the end of the Euro as we know it even before the summer break.