What's left of the banking system will go tits up if that happens, right?
I'm not Cain, but I've been following this on the FT.
Germany's population are getting sick of feeling as though they are paying for the mistakes of other countries. Ignoring the fact that if they don't continue to bail out those other countries, then yes, it is likely that the amount of debt tied up in several large banks will suddenly become apparent, and they will collapse.
If those banks collapse, it is likely that confidence in the overall banking system will completely evaporate (rather than the current 'running on fumes' situation), and more banks will go under. More banks go under, more countries go under.
Chaos will ensue; rioting in the streets as people are unable to get access to their money, fear and confusion about what happens with mortgages, cats laying with dogs etc etc.
Part of the problem is that the interest rate on the Euro doesn't work for the different economies. It is too high for the larger economies (including Germany) and too low for the weaker economies (the majority of them). As I understand it, there is the possibility of splitting the Euro into two currencies, which would help to mitigate this. But nobody really knows what would happen if that occurred. Debts would need to be recalculated from the Euro standard in which they've been written, into something else. But without the possibility of Germany, and the other larger economies to be fair, being willing to bail out Portugal, Ireland, Greece, Spain, Italy etc, those countries may very well go under anyway.
At which point, the banks do as they would above, because the banks aren't tied to any particular country or currency. They are essentially sitting on huge piles of government debt that they need to be paid back, or they can't finance themselves. Nobody knows exactly which banks are exposed by how much to each country, is the real joke.
I think that it is inevitable that sooner or later, one of these things is going to give. Germany, whilst huge, can't take on the debt of every nation in the Eurozone that needs it. Similarly, there's no way that all the debt owed to the banks is going to be paid back. It is going to need to be written off, and it is going to take some banks with it.
No idea what the impact of this is going to be on the average person on the street. If they were sensible, governments would have found a way to secure the retail side of banking and allow the investment side to collapse. As retail banking makes up somewhere between 2 and 5 per cent of the bank, this would have been painful (as lots of businesses would probably go under with the investment banks), but it would have written off the debt and secured the savings of individuals, allowing them to maintain some confidence in the banking system in general.
I don't think that is likely to happen, though. I suspect that we're going to get the worst possible disaster, one which takes the savings and pensions of people with it, and leaves them no way to support themselves day to day. After which, why would anyone ever trust a bank again? Safer to keep the money under the mattress.
DS has it exactly.
Germany's economy basically a toxic bank for all of the EU's dodgy loans and sovereign debt risks right now, buying them up to keep everyone else afloat.
The Euro experiment is failing because monetary union without political union cannot be sustained in the long term, especially with the nationalistic sentiment that seems to be brewing in Europe nowadays ("why should Greeks get bailed out by Germans" etc) rather than the desire to pull together and stick it out. If the PIIGS (Portugal, Ireland, Italy, Greece and Spain) could devalue the Euro, they'd be in a better economic position, but Germany is set against that. Ironically, if Germany left, it would actually improve the prospects for all these countries, in terms of currency valuation.
Retail banking reform, incidentally, has been put off until 2015 in the UK. I cannot say for the rest of Europe, but I would expect something similar.
Also, this thread has reminded me that I need to get a subscription to the FT, once I move into my new place.