Re: The uncertainty is the key issue
I think in all likelihood the EU and the Euro will simply plod along and keep going without much in the way of major meltdowns. It tends to just continuously fumble its way out of crisis and keep going somehow.
Eventually that will just stop happening. I specifically refer to the Euro here. The Euro cannot work in its current form. This is basic economics. It doesn't matter how hard people try to wish it away, the system cannot work as designed.
There are ways to fix the problems, but they require massive political changes - that so far the electorates hate. There's only so long you can continue to stumble from crisis to crisis, before something gives.
I was living in Belgium in 2001, and there was lots of discussion about the Euro, and its future. And much of that concentrated on these problems. The UK and US types tended to talk about how the system would fail - William Hague famously described it as like a burning building with no exits (see Greece for details). But I remember reading many pro-Euro commentators and politicians too, and they admitted the Euro had flaws, and that there would be crises, and those flaws would get fixed. I think that they couldn't imagine a future in which they wouldn't be running the EU, and most of the governments, with quite a lot of popular support. But that generation of politicians retired. And the public mood changed. And now the solutions are not politically possible.
Greece's problems are Greece's fault. But the only solutions to Greece's problems involve them leaving the Euro, or being given debt forgiveness. As they can't pay the debt, forgiveness was the only option, but the other politicians and electorates are simply sticking their fingers in their ears, and hoping the problem will go away. They'll never get paid back. Greece cannot.
But Ireland and Spain were running large budget surpluses into the crisis. They still had inflation and property booms, because Eurozone interest rates were too low for them, to help the ailing German economy, so they had property booms and debt crises.
Finland had no property boom, or debt crises, or government overspending, but changes in their export markets mean the've been in recession for ten years - the solution is devaluation. But they can't, they're stuck in the Euro.
Italy has a competitiveness problem, and is trying to solve it by repressing wages. But with negative inflation this has had a disastrous effect on their government detb levels. If Germany encouranged 3% inflation in the Eurozone core (impossible now, might have worked in 20010), then these countries could deflate without the huge problems of negative inflation rates. Now they can't. And so the only solution to their crisis is years of misery, and the hope that they might scrape by without their banking systems collapsing, and only 20% youth unemployment. And growth might save them in ten years.
The Euro is the disease, not the cure. The Euro will inevitably kill the patient, unless they're willing to do like the US or UK and pay government money around the system in order to counteract the effects of different areas being at the wrong interest and exchange rates. If that happens you've got a United States of Europe. Seeing as nobody will vote for that, the only other solution is the get rid of the Euro.