Because of the immensely foolish design of the Eurozone's "Target 2" payments system, huge obligations have grown up between the central banks.
The German Bundesbank is due 727 billion euros ($850 million) from other countries as of July 31, while Greece's obligations under Target 2 are themselves over 100 billion euros.
Since Greece has no hope of paying an extra 100 billion euros on top of its official debt, that's not a cost of euro breakup; it's money already lost, which will have to be repaid by German taxpayers. Presumably Mrs. Merkel is aware of this, and will thus be flinty against Greek pleas for more money.
In any case, a "Grexit" is only a matter of time, and from the point of view of both Greece and Europe, the sooner the better.
However, given the other crises looming, Greece won't be the only country to exit. At some point, probably after the top traders' vacations end but before the French crisis actually looms, the markets will wake up to the French risk.At that point, the game will be up, and the euro will be forced to break up of its own accord.
There are a number of possibilities for what follows. My guess is that since both France and Italy are badly run, they will see the euro breakup as a chance to spend some more mad money. Thus both countries will go their own way, restoring the franc and the lira.
On the other hand Germany, Scandinavia and the Netherlands, all well-run, will want to keep the benefits of a common currency, and so will form a strong "Northern Euro" which will rise in value steadily against the dollar and other currencies.
The most interesting possibility is that Spain and Portugal, fairly well run but unable to bear a strong common currency, may combine with Slovenia, Slovakia and possibly Ireland and Belgium, to form a weak but stable "Iberian Euro."
Greece and probably Cyprus, meanwhile, will be sent off to the dunces' corner, to join the likes of Bulgaria and Romania outside any common currency.
For us as investors, it's probably best to steer clear. Every summer I've ever seen eventually comes to an end.
But if you must play the breakup, the best bet is probably the iShares MSCI Germany Fund (NYSE: EWG). The fund currently trades on a P/E of 11 times earnings, with a yield of 2.9%.
Let's just say it promises to be an interesting fall.
Even though "Grexit" is a better solution in the long run. It would be delayed till year end to avoid any problems for Obama's re-election. There are also many other elections in Euro nations in coming months.
Any "Grexit" conditions will bring down the stock markets world wide and its impact will spill over to the main street, affecting the common man. This will jeopardising the re-elections of the current candidates.
So expect more band aid solutions for the EURO financial crisis.