Montreal, Canada

The odds have increased markedly since the emergence of the Greek and Club Med eurozone debt crisis that the EUR might disintegrate. Fears are growing that Germany is fed-up with bailouts and might opt to leave the single currency altogether.

Though the odds are against a German pullout and the huge political implications such a move would imply for European political union, especially with France, investors are nervous.

Differences among major EU (European Union) partners have emerged since Germany initiated a unilateral ban on naked short-selling on May 18th without consulting other EU members. And the rifts are growing.

From its high in late November of almost $1.60, the EUR has plunged 24% in six months – a crash by every definition.

Many Europeans, especially those domiciled in previously hard currency countries like Germany and Austria, have been hoarding gold coins since early May as the EUR plunges against just about everything. Gold prices have surged more than 25% this year measured in EUR terms and continue to hit new all-time highs almost daily for EUR-based investors.

But what if Greece, Spain, Portugal and Ireland decided to pull out of the single currency?

Assuming the EUR survived, a defection by its biggest spenders – also harboring the biggest budget deficits – would probably strengthen the single currency. A Greek departure or a combination of exits, including Spain and Portugal, would strengthen, not weaken the EUR.

Consider this scenario. If the Greeks and other profligate spenders abandoned the single currency the remaining core would be much stronger. This would include France, Germany, Holland and Austria plus Finland, Belgium, Luxembourg and possibly Italy. It would also include Slovakia and Slovenia, two of the strongest peripheral countries in EMU and, possibly, the Czech Republic and Poland down the road.

For the record, Slovakia, Slovenia, the Czech Republic and Poland rank as relatively stronger credits than several countries already in the single currency; the Czech Republic and Poland's inclusion in the EUR would give it a boost. Both nations have relatively strong finances and belong in the eurozone.

If the Germans can convince the French that the only way for the EUR to survive is by kicking out its weakest links then the single currency would strengthen. Let the Greeks, Spanish, Portuguese and whoever else reintroduce their own paper currencies and move on. Otherwise, the endgame for the EUR is probably one of extended weakness, slow economic growth and protracted deflation, not unlike what the Japanese have experienced since the 1990s.

The European Exchange Rate Mechanism (ERM) crisis in September 1992 serves as a useful guide for what might result down the road in Europe.

The "one size fits all" mantra doesn't work in Europe. Back in 1992, Pan-European monetary policy was de facto set by the German Bundesbank, which raised interest rates at a time of deep economic recession. In the end, the Italians and British couldn't swallow Germany's medicine and devalued.

At this point of the European credit crisis it seems highly probable that Greece will default. The markets have not discounted this possibility because many believe German banks couldn't afford to suffer the consequences from loan losses in Greece and, possibly, in Spain and Portugal. Yet a Greek default is imminent.

Austerity measures also don't sit well in a social welfare mindset in Europe since WW II; at some point the best solution might be to let those weaker fiscal countries leave the eurozone, print their own money and devalue their outstanding debt obligations. In this scenario, the Germans would be happy, the Franco-Teutonic alliance would endure and the EUR would survive -- if not thrive without its deadweights.