Up until today it looked like every weak country would be met with a bailout offer by the rest of Europe until the endgame hereby all national accounts are shared, the EU just becomes the US on the other side of the Atlantic.
And that’s actually still the case, except now we’re getting a situation where the politics inside of Ireland may prevent the country from ever accepting an aid, as the current maths makes it look like Ireland won’t be able to accept a budget.
As Krugman noted last week, a big impediment to euro dissolution was the fact that any country leaving the union would likely suffer an instant run on the bank. But Irish banks are already seeing that, and so that’s one impediment, ironically, now gone.
It’s still hard to see Ireland leaving the euro as a base case — does anyone really want it to be Iceland? — but it looks possible.
Disclosure: The author has a $1000 bet that no country will leave the euro in the next 5 years. That might end up being costly.