So President Sarkozy of France threatened to leave the European Union, or the Euro, no-one’s really sure, if Germany did not bail out Greece and by implication all the other particularly badly managed economies on the southern fringe of Europe.

So we have to ask, will the Euro break up?  And if it does what way should a person bet?

Although the tantrum almost certainly did happen, the French would not withdraw from the European project no matter what a vertically challenged Hungarian Frenchman may think.  However the Euro is under stress and it should be watched.

In the same way that a sick person sometimes needs to expel what is poisoning them by throwing up, so the Euro zone needed to expel Greece.  After all they had committed an audacious fraud on the system and had used this system as a cash machine, borrowing to a ridiculous degree and paying everyone out of the largesse.  If Greece did not go out then anyone can get away with anything.

While this makes the Euro very much weaker it certainly does not guarantee a break up for a long time.  However a breakup is just the sort of “black swan” event that is under priced in the markets.

A breakup could happen in one of two ways, either the expulsion of a large number of weak members (and not just Greece but also Spain and Italy) or a unilateral decision by one of the strongest players – let’s just call them Germany – to go back to their own currency in much the same way that the former Soviet states did.

So what would be a good long term bet?  They are quite different in many of their effects (particularly on the Euro) but either scenario would have two essential effects – knocking the stuffing out of Italian and Spanish bonds and stock markets and sending German bonds soaring.  It’s a bet for the brave, but German bonds look overpriced and Italian bonds and the stock market really don’t look sufficiently spooked.