There has been a great deal of speculation as to whether the Euro might come unglued if one of the member nations were to either be expelled, or leave the currency bloc in its own right. However, it occurs to me that a very real threat to the Euro might come from a completely unexpected quarter: nations who are members of the European Union, but not the Euro currency (like Sweden and the UK).
According to the standard hypothesis, it is merely a matter of time before Germany gets fed up enough with bailing out weaker economies that they decide to sever the weakest link, or that the weakest link (e.g. Greece) might bolt anyway, in order to avail itself of options which which are currently prohibited by the Euro rules . It may be far more palatable on the domestic political front to devalue the currency, or simply default on debt, than to implement strident fiscal austerity measures.
This theory seems pretty compelling, and could very well come to pass. On the other hand, there is a palpable threat to the Euro, from EU member states that never joined the common currency, that has gone virtually unnoticed. In short, it is possible that strains from dealing with Euro currency problems may lead one (or more), of the non-Euro countries to bolt from the European Union altogether.
At first blush this seems crazy. EU nations have such a close economic arrangement, that leaving the free trade zone would have extremely deleterious economic effects. On the other hand, what the desperate measures that Euro nations are exploring, as they struggle to stave off disaster could potentially lead to precisely this kind of almost unthinkable result.
For example, there has been recent talk of Euro member nations forcing an emergency vote in European Union government sessions, using simple majority rule principals, to force even non Euro members to participate in the Euro bailout. If such a thing were ever to happen, and countries like the United Kingdom and Sweden (who never joined the Euro to begin with) were obligated to pay for bailing out the Euro currency, the political backlash could be truly frightening. Considering how luke-warm countries like the UK have always been to the EU, forcing them to participate in bailing out the Euro could push things over the edge.
And just what, pray tell, would happen if the UK were to secede from the EU? It would undoudbtedly spread fear and economic panic far and wide. The Euro would likely be toast overnight. Instead of merely dealing with the calamity of an unravelling Euro currency, the departure of a nation from the EU could undermine more than 60 years of painstakingly crafted European unity. Certainly it is inconcievable that a civil war could break out, with the remaining EU members refusing to allow other members to depart, but the psychological damage would be enormous nonetheless.
Of course, the EU could very well be in jeapardy even if there is no revolt amongst non-Euro nations. The bad blood that will exist upon the departure of any Euro member nation from the currency (which is looking increasingly inevitable) will make running the EU an even more difficult proposition than it already is. After a messy currency divorce, it is hard to envision that the previously married parties will be able to cooperate on a broader EU level.
Perhaps the future of the Euro isn't the only thing we should be worried about.
