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It's the end of the euro as we know it

The European currency Euro logo stands in front of the European Central Bank (ECB) in Frankfurt/M., western Germany on August 4, 2011.
The European currency Euro logo stands in front of the European Central Bank (ECB) in Frankfurt/M., western Germany on August 4, 2011.
Frank Rumpenhorst/AFP/Getty Images

Greek gets a new government. Italy will soon get a government. And still the markets aren't calmed. The Dow flirted with a 400-point drop all day before closing at minus-389. Meanwhile, German Chancellor Angela Merkel and French President Nicolas Sarkozy have finally just come out and said it: There should be two Europes — one run by...Germany and France, with the Euro as its currency; the other limping along with whatever's left in the Franco-German wake.

For critics of the Euro — and there have been plenty since the single currency was introduced in the 1990s — this is an "it's about time" moment. But even relative supporters are yelling surrender. At the Financial Times, Martin Wolf throws up his hands:

Will the eurozone survive? The leaders of France and Germany have now raised this question... 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.

What's weird about this is of course that France and Germany were for a century rivals — and at times violent rivals — in Europe. Now people commonly talk about a Franco-German "axis." Yes, axis. It's come to that: they fought two wars against each other — three, if your count the Franco-Prussian War of the late 1800s — but are now prepared to break off from the European Union and do their own thing.

The two main drivers of a unified Europe now have only one big question: Should the euro close up shop as a single currency?

Unthinkable? Maybe not anymore. Even Paul Krugman has finally conceded that the the euro might be a goner. It's certainly troubling when European leaders conclude that democracy isn't working anymore and that whole countries might have to turn to government by "technocracy." Which makes it sound like the accountants are going toi swoop in and save the day.

Also writing in the Financial Times, Tony Barber frets less over the end of the single currency than others, considering the prospect that the crisis may create greater union rather than a euro breakup. But the technocratic solution isn't appealing to him:

The deeper Europe’s debt crisis becomes, the more European policymakers are clutching at solutions that substitute technocratic government for democracy. It looks like a desperate throw of the dice rather than a rational attempt to reorganise the eurozone into a genuine economic union.

This is all causing markets to misbehave. You can't really say they're volatile, even though the so-called "volatility index," the VIX, is currently elevated. What's volatile about Europe coming up with a plan to save itself, which causes markets to trade up...until they figure out that the plan won't work, at which point they tank. Up. Down. Up. Down. That's not volatility — that's predictability!

We might really be watching the grim denouement of a drama whose plot was set in motion a year ago. After all, this is far from their first time that we've heard that Germany and France might want to go off an get a room. This is Christopher Hitchens in Slate in April 2010:

How tragic it is that the euro system has already, in effect, become a two-tier one and that the bottom tier is occupied by the very countries—Greece, Portugal, Spain, and Ireland—that benefited most from their accession to the European Union. The shady way in which Greece behaved in concealing its debts, and the drunken-sailor manner in which other smaller states managed their budgets, has, of course, offended the Germans. It is openly said in Germany now that it would be better to bring back the deutsche mark than to be bailing out quasi-indigent and thriftless banana republics.

Bring back the deutsche mark? Or should Germany (with France) keep the Euro to itself? I guess it all depends on whether you think the Franco-German axis is really an axis. Or if's just the two of them — Angie and Sarko — a nonaggression pact that can't last.

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