In two words – “cold war”.
Psychological research shows that whether we know it or not, everything we perceive, analyze and decide upon, we do so from a social-emotional context. We like to tell ourselves that we are being objective but our beliefs and our confidence in them come from our backgrounds – a social-emotional context.
So for a moment, assume that is true (even though I know you don’t like it) and think about the situation in Europe. If you were Merkel or Draghi or any of the other players, would YOU want to be the one to pull the trigger? It’s easy to think of these people that we don’t know in the abstract. The truth however is that the labyrinth of their perceptual mechanisms are the same as ours (the old everyone puts their pants on one leg at a time thingy).
So in reality, no one really knows what would happen if the ECB or the IMF or other powers that be tried to let one of their neighbors go bankrupt. Everyone assumes something bad would happen.
Therefore, until someone proves to a whole group of people living together that the odds are something GOOD would happen, no one will take the risk. The Eurozone will therefore limp along from one bandage to another … for who knows how long… maybe decades. Oh sure, there will be tough talk but no one will individually or collectively take the risk. The potential for social-emotional (and worse) pain is just too great.
I can’t begin to imagine what the debt-currency equivalent of a Reagan “Tear down this Wall!” moment would even look like. Neither can they.