Why a 'new euro' could be the saviour of the European dream … Once unthinkable, the possible demise of the euro is now very much up for debate. Well, among market participants – the politicians will not countenance it, despite the tectonic shifts in the eurozone. Put simply, the authorities' view is that the euro must be retained – not only for the survival of governments and financial institutions, but also to keep intact the dream of a United States of Europe. So central is the currency to the ideal of the single economic bloc – an economy to compete with the US and Asia's emerging titans – that the notion the euro could fail is a great unmentionable in these circles. … But even if the official view is that the euro cannot fail, surely it is inconceivable that the politicians and policy-makers have not given any thought to what might need to happen should it collapse. So what secret thoughts might they be having? How would they cope with the unthinkable? – UK Telegraph

Dominant Social Theme: Thinking the unthinkable about the euro's demise.

Free-Market Analysis: We never understood how the EU would work over the long term. The tribes of Europe gladly took their profits, but how can you make the argument that people should put up with years of "austerity" for the sake of a concept only a banker could love. Pan European song-festivals seem popular but we imagine that if a German, Italian or Spaniard were asked if he or she were willing to place a united "Europe" above a particular nation-state, the answer would probably be no.

So long as the euro-bubble continued to expand, EU-crats could say bland things about European unity collect their salaries, manage their graft, and go home. But as bad times bite, people will gradually begin to focus on exactly what has been accomplished in their name in these past decades. We cannot see this as good news for the EU, or that the verdict will be especially positive. The EU was having a hard enough time while things were relatively good. There were negative votes, do-overs, and a determination that the EU was going to gain more powers no matter what. And it did gain them. But now it is having a hard time using them.

At some point, in some sense, a political structure needs the validation of its citizens. Without credibility, no political structure can long survive. That's the reason the elite struggles so long and hard to manufacture consent through dominant social themes. That's the reason to control the masses via fear-based promotions rather than bullets and soldiers. Once rulers start to speak the language of violence, the context changes. Now violence is seen as part and parcel of the conversation. And there are a lot more of the ruled than the rulers.

For these reasons among others, we believe the ability of those who have placed themselves in charge of the EU will find at some point that it is simply too hard to manufacture a consensus to continue on with business as usual. The trillion dollar bailout, for instance, has proven to be something of a display of smoke and mirrors. It may have staunched the bleeding momentarily, but Spain was just downgraded, credit-wise, and apparently France is next.

The protests have hardly begun across the continent, but Greece has already provided a preview – and it is likely to be a long, hot summer. We would tend to think that unless there is some sort of miraculous economic recovery that puts everyone back into a good mood, the EU is facing some rough challenges. It's not even just about the euro anymore. The size and even the viability of the union itself is in doubt in our opinion.

For this reason, we think we'll begin to see numerous plans floated that offer EU fall-back positions, especially when it comes to the euro. The problem we see with them is that the elite itself – the power elite not its political functionaries – will see these fallbacks as an admission of failure and rightly so. What is holding the vision of ever-more centralized global governance together at this point is the insistence on its inevitability. As soon as that is shattered, questions (so many questions) will start rushing through the breech. Nonetheless, the plans will be offered as they must. The Telegraph, in the article excerpted above, is one of the first to offer a radically revised currency plan. Here's some more from the article:

If the euro ceases to be the financial system would be faced with financial calamity. The means of exchange would be questionable and, in extremis, the euro would become a worthless piece of paper. In addition, all existing legal contracts in bonds and derivatives would be denominated in a dead currency. Left unchecked, this collapse would probably destroy European capital markets and severely damage economies, with global carnage close behind.

First, the authorities would have to create new national currencies as a means of exchange. To solve existing euro contracts issues, you would need a one-for-one successor to the euro, so let's call it the "neuro". We've been here before: the ECU was turned into the euro in the same way. This successor currency would then be legal tender in all European countries. But the big question is who would stand behind this supranational currency?

At present, the euro is the pooled responsibility of member states issued through the auspices of the European Central Bank. To maintain continuity, the neuro would have to be based on this same pool of responsibility. Again, there is precedent: the eurozone has had such a pooled currency before: the ECU was a basket of currencies.

Next, policy-makers would have to determine what the neuro should look like. If it was a basket primarily based on a new Deutschemark, then it would be a hard currency: savers would be very pleased while borrowers would be distraught. If it were a basket full of perceived weaker currencies, savers would be left poorer and borrowers would be relieved. A tough decision.

So how might they justify the national currency weights behind the neuro? They could weight it by GDP; attempt to create a neuro that is equivalent in value to an outside barometer of value like the US dollar; or base the weights on the old ECU. However it was done, at least the markets would have a continuity of contracts.

All right, this all sounds reasonable enough. But the trouble with currency break-ups is that they are often like divorces. Reasonableness may take a back seat to passion and even irrationality. As we recall, Margaret Thatcher was sacked over her insistence that the euro would not work in the long-term. The rest of the cast-members not only went along with the idea, but did so enthusiastically. The idea was that, yes, eventually there would be a crisis, but the crisis would only drive the tremulous nation-states of Europe closer together.

We assume those in charge at the time envisioned a complaisant media and a magisterial silence that would allow their arguments to reverberate. Instead what they have got is the Internet, a technology that drowns out all but the most plausible and intelligent arguments. Propaganda doesn't work so well these days. Massaged messages are difficult to maintain. Promotions are hard to sustain, especially fear-based ones.

It may be that the powers-that-be manage to hold on to both the euro and the EU. But we think it could go the other way just as easily, especially if economic conditions continue to erode. If that's the case, reasonable fall-back plans may not be seen as enough – and may be looked upon with suspicions by many who will view them, rightly or wrongly, as a way to ameliorate the losses of banks and other financial institutions.

If the EU really does succumb to entropy, we would tend to think it might fly apart entirely and countries, at least some of them, will end up with their own currencies again. We don't think that's such a terrible outcome, especially given that the alternative is a grim, forced austerity under the lash of the IMF. But it won't make the elite happy, not one bit.