Should the Euro be broken?

First a $100 billion bailout of Greece followed by $85 billion bailout of Ireland. Can the ESM (European stability mechanism) breathe a sigh of releif? Going by the scheme of things this is just the beginning as bond yields spreads of countries like Spain, Portugal, Belgium, Italy continue to diverge away from the German bund yield. So as the EU works towards a solution to stall the domino effect a question does rise in one's mind. What if the euro is broken?

My analysis of this problem goes as follows:

For starters there are basically 2 parties involved the Thirfty & the profligates. Quite obviously the Germany, Austria & Netherland fall into the category of the thrifty while the debt stricken economies of the EU fall under the profligates.

So what are the benefits for both these parties involved in case they do decided to break up the euro?

The Profligates

Pros: Well they get to devalue their currency thereby boosting their exports & reducing employement as the wage rate would fall at par with the likes of 3rd world countries. This would augur well for them in the long term as it would boost economic growth.

Cons: There would be an immediate flight of capital from the country. Restrictions imposed by the government to restrict this flow would hamper the credibility of the country as a hub for investment. Thus in the short term they are looking at a severe capital crunch

On the whole unless the government figures out a way to cover the capital crunch the profligates would not benefit from breaking up the euro

The Thrifty

Pros: They would be freed of handing over aid to the profligates. They would independent monetary policy control.

Cons: Firstly there would be an immediate flood of capital in the country. This would either result in close to 0 or even negative yields. Secondly the currency would appreciate drastically thus impacts exports. This would reduce the amount of industrial activity in the country and add the impending unemployed. Apart from that the value of the assets invested in the profligates would drastically go down thus creating losses for the thrity.

Thus this move would not only dent the economic health of the thrifty in the short term & long term but also impact create a liquidity problem for them

I have yet not considered the impact/cost of switching currencies. Despite that the idea seems like a bad for both the parties. What is your opinion??