One of the benefits of European monetary integration was going to be the elimination of the uncertainty of the movements in currency rates so as to increase cross-border transactions and create the largest ‘domestic’ market in the world.
In order to remove that uncertainty the architects of the euro have unfortunately created much deeper anxieties and uncertainties. The reality in southern Europe right now is that savers are spending their time trying to protect their wealth from the spectre of bank failures, devaluations, and capital controls. Investors are demanding a high premium to invest in Italian and Spanish bonds, and entrepreneurs have to compete in an open global market with German (and French for the time being) competitors paying a fraction of their cost of capital. These economic distortions pale in comparison with the old threat of a lira or peseta devaluation of yesteryear.
The main point to consider is that these economies, including those like Spain and Italy which are on the path to fiscal consolidation, will never be able to meet their deficit targets with the real economy slowing down and going backwards due to the combined effects of increased taxation, lower disposable incomes, high relative interest rates, and anxiety about the future. The longer it takes to find a real solution, the more painful it will be to solve the issues at hand, without discounting popular discontent which at some point may force a reversion to populist measures.