Is the euro about to capsize?

In seafaring, there is a concept called the "free-surface effect". It happens when a surprisingly small amount of fluid can move freely inside a boat. It is an accident waiting to happen.

As the boat tilts in the waves, the water starts to flood across the floor, pushing up against the boat's lower side.

Instead of righting itself again, the boat begins to list more and more as the water moves inside it, until the boat capsizes.

Something similar is happening to the euro.

When it was created in 1999, there was a fatal flaw. While governments shared a single currency, they continued to have their own separate bond markets.

Bonds are IOUs that governments issue in their hundreds of billions when they want to borrow money.

Just like shares on the stock market, they can be traded by investors. If investors don't like a government's bonds, they can sell them.

That sends their price down, which by implication means the interest rate the government would have to pay if it wants to borrow more money goes up.

Investors might sell bonds if they are afraid that a government cannot repay its debts.

Normally this is not a problem. Because normally, a government is the master of its own currency.

It can order its central bank - the currency's guardian - to print as much money as is needed to repay its debts. ECB boss Mario Draghi has ruled out the Central Bank printing money to buy up bonds indefinitely

This makes the debts of governments such as the US, Japan or UK the safest investment in their currencies.

Moreover, if a foreign investor doesn't like the British government's debts, not only does it sell government bonds.

It also sells the pound. That pushes the pound's value down, which helps make the UK economy more competitive, which helps the UK grow and the government raise taxes. What's more, when one investor sells pounds, another must buy them.

And where will that buyer invest those pounds? Back into UK government bonds. So by having its own currency, the UK government is pretty much guaranteed its own pool of sterling cash to finance its borrowing.

Investors believe that Greece cannot possibly repay its debts.

Unlike the UK, Greece does not have its own Central Bank that it can rely on to print money and buy its debts. And a 50% write-off of its private sector debts is already agreed in principle.