Like an economic collapse in Europe, or worse. Here is Ambrose Evans-Pritchard on the latter possibility:
Chancellor Angela Merkel tells us that peace in Europe can no longer be taken for granted, and she is right. Her own Gothic actions and her inflexible imposition of 1930s Gold Standard contraction and debt-deflation on Southern Europe is itself preparing the ground for Europe’s civil war (hopefully pacific), a rebellion by the South against the North.
His point is that preserving the Eurozone in the way it is currently being done will only lead to a Eurozone rebellion that cannot end well. In particular, he is appalled at the "great Euro Putsch" rolling over two European democracies:
The Greeks were ordered to drop their referendum on measures that reduce their country to a sort of Manchukuo, with EU commissars "on the ground", installed in each ministry, drawing up lists of state assets to be liquidated to pay foreign creditors. Europe had the monetary and fiscal means to contain the EMU debt crisis long enough for Greeks to give or withhold their crucial assent to this ultimatum in December. It chose - under German-Dutch pressure - not deploy those means. Instead it forced Greece to capitulate by cutting off an agreed loan payment. In Italy, the European Central Bank has engineered the downfall of Silvio Berlusconi by playing the bond markets, switching purchases on and off to enforce compliance with its written dictates ("La Lettera"), and ultimately allowing 10-year yields to spike to 7.45pc to drive him out.
What a sobering interpretation of recent events. It brings to mind the famous 1997 Martin Feldstein article titled "EMU and International Conflict." Here is the first paragraph:
To most Americans, European economic and monetary union seems like an obscure financial undertaking of no relevance to the United States. That perception is far from correct. If EMU does come into existence, as now seems increasingly likely, it will change the political character of Europe in ways that could lead to conflicts in Europe and confrontations with the United States.
There is an easier and more peaceful way to save the Eurozone. It is letting loose the true firepower of the ECB. Doing so would reduce the risk premium on troubled sovereign debt, raise inflation, and restore nominal incomes. The first of these would give breathing room to sovereigns needing to work out their debt problems, the second would correct the real exchange rate imbalance within the currency union, and the last would reduce the drag of the debt burden. The problem is that the Germans seem more concerned about inflation than the fallout that will come from staying on the Eurozone's current path. If only there were a way to incentivize the Germans and the ECB to turn on the monetary spigot. Actually, I think there is a way, but it will have to wait for another post.