The Euro - the clock is ticking.

As I established a year ago - its a matter of time for the less competitive countries in Europe (Spain in my example) to run into trouble within a common monetary system with more competitive countries.  The inflow of money that comes with the anchoring of the monetary unit combined with the missallocation of credit (to non-productive uses) or simply the expenditure of that money ultimately leads to a situation where the country becomes uncompetitive, and will ultimately lose its ability to grow out of a recession. 

Spain, Italy, Greece and Portugal (and Ireland) are in that predicament and no matter how much the ECB and its sister countries "throw" at the problem (i.e. to cover debt maturities in each one of these countries), its a problem that has no easy solution.  The only way to solve the lack of competitiveness for these countries is to coordinate salary deflation across its public and private sector to regain the competitiveness it needs.  Since we know from history and reason that is not possible, there is only one ending to this story: devaluation (and in most situations)  default.

Let's take the two extremes: Greece - has an uncompetitive private sector and a bloated public sector + unsustainable debt levels - it will simply default, leave the euro, and devalue.  For Spain the story is a little different - it has an uncompetitive (less in relative terms than the Greeks) private sector + a bloated public sector (less than Greece) + a sustainable debt level (At this pt).  So, for Spain, while its still liquid, the engine that generates profits in that country is dead (within the Euro) - its like a company with little debt, yet, it can't make money for the foreseeable future, so its wholly dependent on creditors (who are happy to lend the hot potato at above market levels, knowing that there are certainly places where they can unload the debt at a partiucular pt in time).  So, if Spain gets out of the Euro now, devalues, it might not have to default...however, reason and politics tell us that it will obviously stick it out and then devalue.

The lack of central taxing authority (to take care of most needs of the population) + the lack of mobility for people is what puts all the countries (who are not equally competitive) in this bind.  A solution for the lack of competitiveness in these countries would have been: (1) to have a central authority take care of basic people needs (i.e. so there is no country-specific political turmoil - think a US state), or (2) for unemployment to have a high bar as people can easily move to other places with more work (Again, think the US under a common language - or taken to the extreme - think Puerto Rico, whihc has about 4MM Puertorricans in the US).

The better question is what then remains of the Euro if these four countries leave?
Let's see where this story takes us, as its not easy to exit these monetary unions.