A year ago, the signs were good: Major European powers were prepared to do what was necessary to save the euro, or so, like Mario Draghi last week, they said.
Now, not only are the long-suffering Greeks questioning the benefits of staying within the eurozone, the rich nations funding their debt are questioning it too.
The Finnish Finance Minster, Jutta Urpilainen, said recently: "Finland will not hang itself to the euro at any cost and we are prepared for all scenarios. Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for."
As to what the Germans think of the Greeks, consider a recent headline from top business newspaper Handelsblatt. It read: "Athens subsidised exhibitionists and paedophiles". There doesn't seem much hope does there?
European leaders know what needs to be done to save the euro but if they want to get re-elected, they have to hang tough. Meanwhile, the troubled countries resent the way their richer neighbours seem to be governing from Brussels, imposing swingeing cuts at a time of political and social turmoil.
Surely, says Con from Thessalonica, leaving the euro can't be any worse than it already is, especially when 80 per cent of the funds in the most recent bailout were returned to major European banks as debt repayments. Why should we pay for their stupid loans? And you can see Con's point.
As for the rich northern eurozone countries, they don't understand the need to carry the can for countries that have fiddled the books, wasted vast sums on property bubbles, failed to collect taxes, lived the high life for a decade and offered state funding to paedophiles. You can see their point too.
So if the PIIGS (Portugal, Ireland, Italy, Greece and Spain) are to be bailed out again, says Helmut from Düsseldorf, it will be on our terms. And yes, these terms will be so strict and painful that it will seem like we're running your country, which, actually, we are. You may want to walk away as a result, but that's the price of our support. Take it or leave it.
With reports of secret EU plans for a Greek euro exit, the prospect of another Greek election bringing Syriza to power with a mandate to leave the eurozone and even the wonks at Bloomberg arguing that Germany should leave before Greece, we're approaching the endgame.
So, where do things head from here? Won't the EFSF save the euro?
Almost certainly not. The European Financial Stability Fund has €780 billion in it. That's nowhere near enough. To be effective, the fund needs a truckload more money and thus far, Germany – the only country that really matters in this sense – seems unwilling to provide it.
The EFSF also has a structural problem. Together, France, Italy, Spain, and Germany account for 75 per cent of its funding. If any of these countries require support from the fund, it's game over. There's early evidence that at least one of them will.
We're already aware of Spain's troubles and right now, the International Monetary Fund is inspecting Italy's books. After eight years of Silvio Berlusconi and "flexible" statisticians, who's to say they won't find more book-cooking?
As for France, listen to the chirruping canaries of the London real estate market. "Since February, when [President Francois] Hollande announced his wealth tax, there has been a large rise in web searches from French customers," commented Liam Bailey, head of residential research at Knight Frank, to The Daily Telegraph. The same London agents noticed Greek money flooding in almost two years ago.
Leveraged at a ratio of 25-to-1 (Australian banks are between 14 and 18-to-1, if you're wondering), French banks simply aren't prepared for capital flight. And yet there are early signs of it happening.
They're also carrying huge bad debt exposure. About 30 per cent of the country's GDP is invested in the PIIGS. If one or more of those countries defaults, French banks are in deep trouble and the dreaded contagion that European leaders fear will be upon us. German banks are similarly exposed. That's why the possible default of a relatively small country matters so much.
What needs to be done to save the euro?
Let's forget about loading up the EFSF with more cash. The underlying problem is structural rather than financial. The eurozone has all the problems of a sovereign nation but none of the potential solutions.
It shares a common currency and a banking sector problem. What it doesn't share is the ability to collectively address it through a sharing of the debt burden and a co-ordinated taxation and cross-border public expenditure policy. And it certainly doesn't possess a series of supranational bodies to police the whole shebang.
As Chancellor Merkel said on June 23, "liabilities and controls" must "go together". In other words, we'll share the debt if we share everything else too, with us at the controls.
For the eurozone to be viable in the long term, it needs to become a proper federation, like the United States or, funnily enough, Germany. Instead, it's a collection of geographically close nations bound together by an assortment of insolvent banks.
If the eurozone collapses, how will it happen?
There are two ways to leave the euro; chaotically unmanaged, or managed, with slightly less chaos.
Let's deal with the "unmanaged" first and assume the European Central Bank, IMF and European Union (the "troika") refuse to continue funding Greece.
The country would quickly run out of money and struggle to meet debt repayments. Because the Greek National Bank wouldn't have access to euros, it would need to halt its liquidity program, effectively collapsing the banking system. Chaos ensues.
At that point, Greece has defaulted on its debt, is without a source of funding, is out of the euro and needs a new currency. Those with money still in the banking system, knowing they're about to have the value of their savings slashed, try to withdraw their cash. New laws are quickly passed to prevent them from doing so.
Banks are closed and ATMs shut down. To stop truckloads of cash being driven out of the country, border controls may also be imposed. Within hours, government printing presses start punching out new notes and coins.
The banks, which have probably been closed at 3pm on a Friday, reopen at 9am on Monday having converted all balances to drachmas over the weekend. The new drachma immediately falls against other currencies, by perhaps 50-60 per cent.
Banks are instructed to get the new currency into circulation as quickly as possible. Companies, unable to finance their cashflow, close en masse and economic activity contracts by anything from 20-40 per cent in a year, much as it did in Argentina when it defaulted in 2002.
Meanwhile the European banking sector has shut down under pressure from a Greek default and the authorities have stepped in to prevent a pan-European bank run. Global credit markets freeze, just as they did in the GFC, economic activity rapidly contracts and sharemarkets the world over collapse.
No, it ain't pretty.
The more preferable "managed" departure isn't especially attractive either. The big advantage is that the authorities get a chance to plan for it. In the event that Germany announces a return to the deutschmark, the EU could actively support the banks before it became vital to do so, thus reducing the risk of a bank run and capital flight.
The EU could also offer private sector support and individual nations could plan their future currencies in a far less volatile environment. It would still be chaotic, and the risk of the move triggering a global depression wouldn't disappear, but it would reduce the possibility of it. We'd be in for a few tough years whichever way it happened.
What does this mean for your portfolio?
Remember the collapse of Lehman Brothers, when the global banking system froze? Given that we're dealing with bank and sovereign debt, this time around it may be worse.
Nevertheless, Australia remains nicely positioned to weather another GFC; our banks are well capitalised, public sector debt is low and there's plenty of scope for rapid interest rate reductions and government pump-priming. It would be scary but the chances are Australia would once again emerge in better shape than many other nations, especially as our economy is now more tied to Asia than Europe.
A eurozone break-up isn't something to welcome but it's important to see past the chaos. The stocks Intelligent Investor has recommended over the past 18 months (you can read about them and get three current buy ideas by following the free trial offer link below ) would probably fall in the event of another credit crisis but they would survive and recover. Corporate balance sheets were also repaired in 2009, so there should be fewer painful capital raisings.
Then there are the opportunities. It's almost certain that another global banking crisis would produce a raft of attractively priced stocks, just as it did in 2008-09. That would be the time to deploy the cash you've so carefully accumulated over the past few years. That's the upside.
Having mitigated the downside risks and set aside cash to take advantage of the opportunities, the chances are that a few years down the track, your portfolio will be showing very healthy returns over the entire episode.
It's just that we'd all have to endure the rollercoaster emotions of another global crisis to get them. And really, who wouldn't want to avoid that?
This article contains general investment advice only (under AFSL 282288).
John Addis is Editor at Intelligent Investor. BusinessDay readers can enjoy a free trial offer. For more Intelligent Investor articles click here