This article is loosely inspired by this article from STRATFOR Intelligence, which provides a comprehensive analysis of this topic.
The Greek bailout, largely owing to German intervention, raises some serious questions about the overall viability of the Euro as a currency. The Euro is unlike any other major currency such as the US dollar, the Japanese Yen, or the Chinese Renminbi. The difference is that in all these other examples the underlying currency is governed by central, unified macro-economic policy. In the European Monetary Union on the other hand, there are over a dozen member states, each employing the same currency, but each with vastly differing economic policies and budgetary situations. One of the main advantages of fiat currency is that the currency can revalue as the strengths and weaknesses of the country's economy evolve, allowing for adjustment of the currency to reflect the underlying economic fundamentals. For example, should a country acquire too much debt, investors will lose confidence, capital flows away from said country, and the currency revalues to reflect this. The Euro is very different is this regard. There are over a dozen members, each with differing economic policies. Some are hugely in debt (see Greece, Portugal, Spain), while others are in a stronger situation (see Germany). With independent currencies the Greek currency would weaken owing to its poor economic situation (debt and deficit). This weakening in turn would make Greek labour and exports more competitive, thereby boosting its economy. However, with a unified currency this kind of revaluation is not possible. Greece is tied to the Euro, which is strong, undermining the ability of its economy to adjust, which would make it more competitive. Unfortunately Greece is not the only example - the Greek disease could realistically spread to the other Eurozone states with huge national debt and budget deficits. This is the fundamental problem - having a single currency without a single, coherent economic policy, undermines the ability of individual member states to adjust their monetary policy as necessary.
In my mind there are three main possible outcomes to this mess:
(1) Things continue as they are. The rich countries like Germany continue to bail out the weaker ones. And, as more and more countries are bailed out, more and more countries lose incentive to manage their economies successfully as a result of the precedent that has been made. As an increasing number of countries fall, so too will the desire for the rich countries to continue providing the capital to provide for this.
(2) The Eurozone merges into a federation with a single coherent macro-economic policy, and a single budget. Most member countries would oppose such a move, and perceive it as an assault on their independence.
(3) The Euro will collapse and countries will revert to their previous national currencies.
Option 1 is unsustainable. There is only so much tolerance the rich countries will have towards bailing out countries that spend themselves out of existence. Option 2 is unlikely for political reasons. Option 3, seems to likely be a realistic outcome.
Unfortunately all of these options are highly unfortunate and all will have very serious consequences, both within and outside of the Eurozone. The Euro is the worlds largest currency, even larger that the US Dollar, and its instability or outright collapse would be devastating internationally. The implications cannot be overstated. Furthermore, a collapse of European economic integration would stir up huge animosity between member states. This situation is rather ironic, since European integration arose out of historical grounds and was intended to foster joint interests between member states. From this, the opposite could arise.