Five futures for the Euro crisis

1.       Armageddon

Deep down, this is the one everyone expects and even wishes for. In this outcome, Germany does nothing but block the European Central Bank (ECB) from creating the inflation Europe needs to wheedle its way out of its immense debt woes. The weak countries default and bail out of the euro, setting off a tidal wave of contagion that breaks the back of even economically stronger countries like France. A rupture in financial trust creates a lenders strike, in which most of the western world is unable to finance state deficits. Austerity goes out of control, becoming a black hole of deleveraging. Rolling, global defaults and general bank failures create a complete economic collapse throwing everyone back to a financial version of the Stone Age. Recession, depression, and wars follow. Old curmudgeons with gold, tinned food and desert compounds in the US hinterland celebrate being right at last. All this because, once again, Germany got a bee in its bonnet.

2.       The Weak Leave

Faced with austerity and no democratic platform to enforce it, the PIIGS* countries simply default on their euro bonds and reintroduce home currencies. This is drastic for them but at least they can then get back to business as usual, borrowing large but manageable amounts of money with the chronic tool of inflation to right-size the resultant mountain over time. The market -not being stupid - lends at a high rate to a margin perceived as sustainable, while financial repression does the rest. It worked before, and it will work again. New, local currencies crash and local lifestyles return to older patterns and prices. A period of local dislocation is replaced after two-three years with an economic performance resembling something looking normal. When it comes to defaults, lenders have short memories. Russia defaulted in 1998, so what?  Perhaps in ten years, re-entry to the euro occurs. This is the model current euro currency levels suggest is most likely. If the weak leave, the euro will remain strong and get stronger still. The euro is strong, so this is a big hint the weak will leave.

3.       Strong leave

Europe wants inflation, Germany doesn't. Germany loved its Deutschmark and isn't quite so keen on the euro. Why not leave the euro and leave the rest of Europe to have the inflation? From the outside, this seems crazy, but then, so does the German's point of view that any inflation is satanic and leads to fascism. Strangely, just as the French believe their 18th century bread prices invented social revolution, so the Germans think their inflation invented fascism, something Mussolini would have taken issue with.

Germany is, in effect, creating the Euro-rupture that would lead to only Germany, Holland, the Finns and the Pope remaining in the euro currency.  Instead, why not simply bow out of the euro currency and let the economic rabble print their way out of obligations. Germany gets its beloved Deutschmark back, and the rest get the inflation they want, which is equivalent to the haircut bond holders are going to take in any event. The fly in the ointment of this outcome is that if it was a significant likelihood, the euro's value would have already gone off a cliff by now. However, the euro remains strong.

4.       Tighter Euro Integration

Germany and France somehow get everyone around the table. They then explain why each country should give up their central spending authority, undertake central supervision by Brussels meanwhile convincing each and every premier there is no need to get a referendum passed by their population. Because the economies of Europe are all looking into the fires of hell and the prospect of losing their jobs in any event, they see sense in this 'Merkosy' steamroller of tighter EU integration - a long hop towards the United States of Europe.

 Any such head lock on dodgy countries like Greece has to be enforceable while somehow not violating democracy or creating peace-shattering nationalistic movements. Germany then effectively guarantees the debt of the whole of Europe. In return, it would receive a vice- like grip around the throats of the PIIGS or, put politely, influence control over their spending policies.

5.       Return to normality

So what has really happened so far? Greece -  a country everyone knew for years was broke, is broke - and it has screwed some private government bond lenders,  in turn freaking out most European lenders.

It can no longer borrow and has had to cut back on its playboy lifestyle. Italy and Spain, too, are starting to have to pay 7% interest to keep up appearances. However, these rates would once have been considered normal. Another bad boy, Ireland, who was paying 14% -  an interest rate level that the UK and Sweden have suffered in the last generation, is now paying 8% - a lot less than even a few weeks ago.

Maybe it is not the end of the world. Maybe interest rates are simply returning to long-term normality.

If the politicians can keep talking long enough, they will have got their budgets in better shape, have sneaked in sufficient inflation to start grinding away at debt levels and have been working hard enough on balancing cheque books to reassure scared borrowers. By then, lenders will have realised they can't keep all their money in gold and tinned food and that living in a desert compound in Nevada is no fun, especially when the US is probably in worse shape.

A broadcast and print media regular, Clem Chambers is a familiar face and frequent co-presenter on CNBC and CNBC Europe. He is a seasoned guest and market commentator on BBC News 24, Newsnight, BBC 1, CNN, SKY News, TF1, Canada's Business News Network and numerous US radio stations. He is renowned for calling the markets and predicted the end of the bull market back in January 2007 and the following crash. He has appeared on ITV's News at Ten and Evening News discussing failures in the banking system and featured prominently in the Money Programme's Credit Crash Britain: HBOS - Breaking the Bank and on the BBC's City Uncovered: When Markets Go Mad