The Eurozone will eventually collapse, with at least one member nation leaving this year, says the Centre for Economics and Business Research (CEBR), a noted British think tank. It sees a probability of 99% for a complete breakup within ten years. It could easily happen much faster. If one country leaves, it would destabilize the entire wobbly apparatus.

For example, if Greece left, there is no conceivable way it could pay off its loan obligations. The drachma would be worth significantly less than the euro, thus increasing their debt load quite possibly by an order of magnitude or more. The nation can't even pay its debts now. If the drachma was worth, say, 10% of the euro and the debt was payable in euros, then it would owe ten times more.  That's just the tip of the iceberg.

Then there are the icebergs. Who owns the Greek debt? How exposed are they? How many billions (or trillions) of euros are there in credit default swaps on dicey sovereign debt? Large banks routinely loan each other money overnight. During the Lehman crisis, liquidity slowed to a near halt primarily because no one trusted each other or knew where the icebergs were. That will happen again if or when countries start leaving the Eurozone.

Someone once said that "a camel is a horse designed by a committee." British journalist Imogen Lloyd Webber opines that "Europe is not the United States of Europe. It is the Disunited States of Europe." The Eurozone wasn't designed by one committee, but more like 17 (or is that 27) committees. All of them need to agree on decisions, often after taking them to their populaces. Further, euro member states do not have the power to print their own money, a major difference between them and the United States. The crushing debt load of several euro nations and the inability of the Eurozone to move fast makes its problems appear mostly intractable.

"Legend has it that 2012 will be the end of the world. It won’t be that, but in 2012 we are highly liable to see the end of the world as we know it," concludes Lloyd Webber.

All this will likely impact the United States. Trade with Europe for Jan-Oct 2011 totaled $273 billion in exports and $370 billion in imports. The European Commission says "The EU and the US economies account together for about half the entire world GDP and for nearly a third of world trade flows." If the euro craters or disappears, money will rush short-term to the dollar, which as wobbly as it is, is still the reserve currency of the planet. This would probably spike the Dollar, which in turn would mean that US exports would become much more expensive for other countries to buy. To be sure, there does not appear to be a real safe haven in a global economy where everything is interconnected, especially not when the Fed is not-so-secretly bailing out Europe.

Now, California represents 13% of the national GDP. Its economy would likely take a big hit if  the euro crumbles. There would be fewer European imports, as those countries scramble to find their way, and the higher Dollar would mean far fewer exports.

To put it succinctly, the core problem in Europe is that the big banks and financial institutions refuse to take write downs on the bad loans they made and the dodgy bonds they bought. As with our real estate crisis here, everyone seemed to know full well that they were buying and selling junk, but no one cared about long-term consequences. Everyone got rich, at least for a while. If the large financial institutions genuinely followed the principles of capitalism, then the solution would be obvious. Let sick and ill institutions die so healthy ones can take their place. Instead, we appear to have socialism (or is it corporatism) for the 1%, as the big banks continually get propped up and no one goes to prison.

Perhaps we should look to the Iceland solution. They defaulted on their bonds, nationalized their failed banks, and arrested bank executives. Their economy is now recovering.  Sooner rather than later, the defaults are bound to happen in Europe. The only question is, will they occur in an orderly manner?