Timeo Danaos

Actually, it is not the Greeks we should be fearing. Rather, it is (as ever?) the Germans who are at the heart of the problem.

The current negotiations may well come up with an arrangement which "kicks the can down the road", but given the impossibilities of the Greek position (whose debts outweigh its ability to repay) such an arrangement would merely postpone the evil day.

The least worst solution (call it plan A) would be for the Germans (and their economically strong allies) to leave the euro and set up a new Deutschmark. This would have unwelcome consequences. The new DM would soar against the Mediterranean euro, making German economic domination of Europe more difficult, but making it easier for the Mediterranean countries to compete. (Arguably, this is what needs to happen under any circumstances.) The German banks would be given a severe haircut as the value of their lending to Greece, Portugal, Spain, etc would immediately be reduced as the DM soared (but the Bundesbank could probably afford to bail them out).

If the only realistic alternative to plan A is a continuing bail-out (over a number of years in the future) of our Greek, Portugese, Irish and Italian amici (which is indeed the case), then the German politicians and people might prefer plan A.