The question is how much will the two powers within the EU, Germany and France be willing to do. This is as much a political as economic question. It seems that there is little appetite for a Eurobond, which would probably quell the problem, Europe seems to have waited too long to address the fundamental problem that they had a united currency but did not hold governments to the agreement about deficits and debt. Greece is now in a position that the only real option is some sort of default. Once that happens how do you stop Portugal and Ireland not to go that route.
First of.. the appetite is there, but the political willingness is not. The reasons are very simple... both Germany and France have national elections soon.. along with pretty much every other major economy in Europe. It is not much different that the present political gridlock in the US. No one is able (Obama) or willing (GOP) to fix the US deficit problems and many other issues, all because of... the 2012 elections.
As for Portugal and Ireland. Greece's problem is quite unique. We are talking about massive tax dodging, corruption and political faliure that lead them to fuddle the books so to say and lie to everyone.
Portugal and Ireland are totally different situations. Portugal has structural problems that prevent growth and frankly did not have to ask for a bail-out if it had not been for the blood thirsty markets pushing them over the edge. Their deficits were "big", but compared to other countries not so much. And the deficits were in most part because of the economic downturn, since they did have much less deficits before the crash (if not a surplus a few times).
Ireland it was political stupidity and the belief in an American style economic growth system based on massive amounts of debt. If anything Ireland should have gone belly up before Greece, since Irelands debt problems are both state and personal. Because the former Irish government in all its wisdom guaranteed all debt in Ireland, then the amount of debt the country is burdened with is far far larger than that of Greece. But because Ireland is still a darling in the Anglo-American financial world, then the markets so far have not pushed too hard against Ireland.
The EU over expanded and added countries that do not have the financial disciplines of a Germany.
Hmm.. you mixing two things up. Yes in my opinion the EU did expand too fast by taking in Romania and Bulgaria. However these countries are not in the Euro and have nothing to do with the present Eurocrisis.
The countries that are in "trouble" were in the EEC before the EU was founded, so cant claim that they expanded too fast on that point. And all but Greece were founding members of the Eurozone in 1999.
What the Eurozone did wrong was to bring Greece in, despite knowing of its issues with its economy and taking the Greek's governments word that things were under control.
Now Portugal should probably not have become a member, but like it or not it did meet the conditions at the time and it was their wish to be a member. Ireland was a booming Celtic Tiger at the time of the start of the Eurozone.. with an economy that was better than Germany's.
Now the problem with the Eurozone from the start was a lack of accountability and control of member states economies and the ability to "push" said economies down more sound paths... I fully admit this and acknowledge as long as the economies were booming due to the US lead debt spending spree, then all was fine. Like America, many in Europe though/hoped that this would continue forever, so the preparation for the opposite was never seriously taken into consideration and let to the individual countries. That is why we saw Ireland committee suicide when their house of cards fell apart, that is why we saw Portugal hurt because they did not have the political will to fix their structural growth problems, and that is why we saw Greece simply lie to everyone.
But lets not forget, that the economies of Portugal, Ireland and Greece combined does not account for much of the over all Eurozone economies.
But let me say this again.. yes it was a mistake to let Greece in because the Eurozone did not do enough to investigate the Greek economy and relied far far too much on Greek governments statistics and numbers.
perhaps the best answer is let Greece have some type of default with their penalty being getting kicked out of the EU and having to use their own currency.
Again you are mixing the EU and Eurozone up. Yes the answer seems to be a structured default (in full or in part). I dont like it, but the markets want a resolution fast and have been pushing for it for a long time.
As for leaving the Eurozone, that is still hard to see. The economic costs of doing so would be huge. Alone switching over to a new currency would cost billions, and lets not forget that currency would be next to worthless and all debt they still had (if any) or debt they would get, would all have to be paid in Euros and Dollars.
As for leaving the EU... never... no one in their right mind would want to leave the EU since the benefits far far out weigh the negatives. But if Greece leaves the Eurozone, then it does not mean that they will leave the EU. In fact more and more countries want into the EU because of the economic freedoms and access to markets that this membership gives. The EU is great for business.