A house of cards...or in Greece's case should it be a villa of cards?

As readers of this blog may have spotted, I have been thinking about how the world might break Greece out of the Euro.
Last night the topic came up in a conversation between friends and I realised that I am behind the curve in some respects and my brain is starting to hurt from the realisation and thinking about the implications.
The point made by a friend was that the event that breaks Greece from the Euro will most likely trigger all sorts of defaults on its debts (loans, bonds, securities, etc). The ramifications are huge and likely to trigger momentous and long lasting litigation....god bless the lawyers!
Before that though there are deeper and wider implications. The defaults will do (at least) three things. The first is the value of that debt will plummet if not evaporate hitting the balance sheets of those institutions, probably mainly European banks and investment funds; that some will fail as a sult seems inevitable.
Second, the contagion will spread, in part through derivative instruments like credit default swaps, and in part through the inter linkage between banks. There will be interesting debates about if there is true default, but the very fact that there is debate will start the cards falling.
The last thing that I have been thinking about is that there will be little or no way for Greek companies to obtain future finance, at least for a while. The image I have in mind is that of water disappearing down a plug hole or matter being sucked inexorably into a black hole.



If I can start thinking these things I am sure that the big brains of government and central banks were all there long ago. I can see now why there is so much effort going into saving Greece - the alternative is almost inconceivable and certainly very undesirable.
When I started working 30 years ago there were debates about whether a country could go bust and if so what it would mean. The focus then was on central and south America and some of eastern Europe. Those countries are still around, but the connections these days are far more pervasive and the numbers are, I guess, two or three orders of magnitude greater.
This is scarey. There is a house of cards with Greece, Portugal, Ireland and Spain in the base row. One falls, it all falls. I can't see an answer and I wonder if anyone can? This maybe be one of those problems that is too big for any one person to understand or divine a resolution.
There was no exit door defined when the Euro was created and maybe we are seeing why - the consequences are too great to be contemplated.