There’s a good read at the Baseline scenario today on four possible endgames for the euro. The four potential futures boil down to …
1) The bailouts for Greece and Ireland work, and the panic stops there.
2) Greece probably leaves the eurozone and restructures its debt. The deterioration continues on to Portugal and Spain, but a package of EU-IMF support stops the crisis there.
3) three or more sovereign defaults in the next five years — quickly priced into the market (a euro “mini-crash”) and dealt with.
4) The euro splits — with some (the “prudent” countries) having one euro and others (the “imprudent” countries) either sharing another form of the euro or starting their own currencies again. The positive effects of exchange rate depreciation will be rediscovered, at least for those without too much debt.
All in all, this would seem to point to more weakness for the euro, but I think we may see a bounce first, probably this week.