So what happens if the euro breaks up

In reality, it neither has mystical powers nor the divine right to exist. The euro architects managed to convince the world for 12 years that its major flaws were minor inconveniences. If its least significant member, Greece, can tip it into a full-blown crisis after only these few years, where is the resilience and robustness in its system architecture? Hedging and Financial Markets For institutional as well as private investors, the only way to hedge against a euro break-up scenario would be to minimise the ownership of paper assets denominated in euros.

The impact of the Eurozone break-up will be to cause the global financial markets to become extremely volatile and dysfunctional. This in turn may cause the quadrillion dollar derivatives pyramid to crumble, generating massive counter-party losses and systemic risk amongst financial institutions.

Soft Power Fragmentation of the euro would incur political costs as well. The European "political" Union would cease to exist in the way we have come to know it. Social, Economic and Political Chaos It is certainly worth noting that several countries in the euro area have histories of internal political division -- Belgium, Italy and Spain being amongst the most obvious examples. Those divisions are likely to be exacerbated as a result of a break-up of the Eurozone. This could contribute to greater social unrest in those countries.

It is also true that monetary union break-ups in history are nearly always accompanied by extremes of civil disorder, civil war or anarchy. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. If a country has gone to the extreme of reversing the introduction of the euro, it is at least plausible that fracturing forces may re-emerge to break apart key political and other structures of its society. At the very least, escalating social unrest seems inevitable.

It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created. On the other hand, in the Hegelian tradition of how change happens, transformation is bound to take place in the way that Europe manages itself.

The specific steps on the path to disintegration or its lesser cousins cannot be fully anticipated at this juncture and in the end they are likely to be a source of surprise for us all.

Conclusion It is becoming increasingly obvious that the Eurozone is going to experience the exit of one of its member countries in the very near future. The cascading consequences pose existential challenges for the Eurozone and the European Union.

The scheme does not target financially vulnerable countries, but the expectation has already reduced government borrowing costs, which have stayed quite low for all eurozone countries as implied by the bond market except Greece. Having said all that, if Greece really does go, financial contagion cannot be ruled out.

Nervous depositors in other struggling eurozone countries, such as Spain or Italy, may also move their money to the safety of a German bank account, sparking a banking crisis in southern Europe. Confidence in other banks that have lent heavily to southern Europe - such as the French banks - could also be affected. The banking crisis could conceivably spread worldwide, just as it did in Greek businesses would face a legal and financial disaster.

Some contracts governed by Greek law would be converted into a new currency, while other foreign law contracts would remain in euros. Many contracts could end up in legal disputes over whether they should be converted or not. Greek companies who still owe big debts in euros to foreign lenders, but whose main sources of income are converted to a devalued non-euro currency, would be unable to repay their debts.

Many businesses would be left insolvent - their debts worth more than the value of everything they own - and would be facing bankruptcy. Foreign lenders and business partners of Greek companies would be looking at big losses. In the wider eurozone, businesses, afraid for the euro's future, may cut investment.

Faced with a barrage of bad news in the press, ordinary people may cut back their own spending. Other options. Close drawer menu Financial Times International Edition. Search the FT Search. World Show more World. US Show more US. Companies Show more Companies. Markets Show more Markets. Other exporting nations within the EU did the same. The resulting trade imbalance had to show itself somewhere. Now add the political tensions stemming from the migrant crisis and the risk of Brexit, and Europe's collapse becomes increasingly real.

Here I outline the five biggest internal risks the European Union faces right now. How it handles them will make or break the entire union — and possibly the global economy. Italy will probably be Europe's main headache. Its banking system is already breaking down as nonperforming loans proliferate. During the worst of our banking crisis, US nonperforming loans never rose above 3. Italy's level is almost six times as large, and there is not an economic crisis yet. A collapse of the Italian banking system is a systemic risk for all of Europe.

Italy has the eighth-largest economy in the world, only slightly smaller than India's. Its economic impact on Europe and thus on the global economy is critical. Compared with Italy, Greece will seem quite manageable. Greece remains important for another reason, though.

It is the main gate through which fleeing Syrians, Iraqis, and others try to enter Europe. Greece is ground zero for the two greatest challenges to afflict Europe in recent years: the debt crisis and Germany's insistence on austerity as the only cure, and the backlash against the wave of human migration from war-torn and impoverished countries.

The migrant crisis is already a humanitarian disaster, and the situation is getting worse.