Plotting a disorderly EZ break-up

Will the eurozone survive? If so, in what guise? If not, how will it be broken up and what might the consequences be?
These, among others, are some of the key questions currently occupying the minds of the financial great and good.
Here’s Martin Wolf in Wednesday’s FT:

Will the eurozone survive? The leaders of France and Germany have now raised this question, for the case of Greece. If policymakers had understood two decades ago what they know now, they would never have launched the single currency. Only fear of the consequences of a break-up is now keeping it together. The question is whether that will be enough. I suspect the answer is, no.

Wolf cites the four scenarios recently put forward by Nouriel Roubini to address the “stock and flow challenges” at the core of the crisis:

1. Restoration of growth and competitiveness through aggressive monetary easing, a weaker euro and stimulatory policies in the core, while the periphery undertakes austerity and reform.
2. A deflationary adjustment in the periphery alone, together with structural reforms, to force down nominal wages.
3. Permanent financing by the core of an uncompetitive periphery.
4. Widespread debt restructuring and partial break-up of the eurozone.

An “unhappy mixture” of the second and third options — one-sided austerity with grudging financing – is now happening, but in the long term the first (the entire EZ adjusts) and the last (EZ breaks up) seem the most likely scenarios, Wolf reckons.
How would a break-up happen?
Here’s Citi:

We believe the most likely scenario for a disorderly breakup would be the following: under pressure from the electorate politicians renege on further austerity measures and reform. The Troika could then be expected to withdraw their funding support and the ECB to stop buying Greek bonds and providing liquidity to Greek banks. Greece would likely be left with little choice but to default faced with financing a deteriorating debt burden and a run on its banks.

Greece would pay big for leaving the EZ. The consequences of its exit would almost certainly involve a collapse of the new currency and banking system, deep recession and possibly hyperinflation, Citi predicted.

Ok, now your turn: will the eurozone survive? If so, in what guise? If not, how will it be broken up and what might the consequences be?
Of course, those known unknowns can be a killer, and don’t even mention the unknown unknowns, but if a break-up is coming it is at least worth having a stab at the questions.

http://ftalphaville.ft.com/blog/2011/11/09/736761/plotting-a-disorderly-ez-break-up/