With the unfolding drama of Spanish bailout and the second Greek election just days away, what are the options for the Eurozone?

As the crisis deepens the siren calls are getting louder. In broad terms there are two options though there is a sort of ‘third way’ which I will come to.

The first option and within the Eurozone the dominant argument, is greater fiscal integration, as agreed last December. However this move is increasingly being seen within the region as untenable. Even the ECB is warning on the perils of a single European banking model and how this may be regulated.

But the economists who are making quite a lot of noise are also mostly failing as they have before over the past four years to grasp the political, behavioural and cultural aspects of the crisis.

Full integration means each country effectively ceding all economic power to a European government. This will not sit well with electorates who are already highly disillusioned with the Eurozone. Full economic power loss means most of the political power also being lost and if the single currency was a risky venture this will sow the seeds of civil unrest and war. The very thing that the EU was set up to prevent.

Integration will also lead to a more permanent state of EU regions that are poorer staying poorer. They will have no competitive levers with which to compete. A two speed Europe will be locked in for good. In the meantime, the currency handcuffs on each country means that the risk of more bailouts for Spain and Italy does not go away. How much bailing is too much? It’s not just the scale; it’s the time scale too. This has been going on for two years and could easily drag on for another five years as patch up goes on top of patch up at increasing cost.

The second option is a break up. Germany should leave at which point the currency will come apart. However, Germany will not leave; they are in too deep and know that for them to precipitate collapse would take a long time to be forgiven. The Centre for Economics and Business Research (CEBR) estimated that the cost of a break up could be $1Trilliion. Well $1.2T was pumped into the EU banking system in the first quarter and that has vanished into balance sheets. In my view, even a $2Trillion support for the break up would be cheap compared to trying to sustain the currency. This would be a short term, definable fix when the long term costs are not known other than that they could be even greater.

Politically this also means that each member country is being treated equally which will make transition easier than if just a few countries exit.

The third way is for the PIIGS to exit, the problem is that this would be about as expensive as a total break up with little advantage for the remaining members. The remaining members may be structurally far more similar than they are to the PIIGS but there are still differences (look at German and French political and economic diversion now compared to last year) and the issues now may emerge further down the road within the new smaller Eurozone all be it not to the debt crisis scale.

The optimal third way I believe is for Greece to exit thus stablising markets and then Ireland and Portugal to follow. Spain has a low debt GDP ratio so is actually in many ways stronger that Italy with 120% of debt to GDP.

In the meantime all trading partners with the Eurozone need to be looking further afield to grow new markets. The Eurozone is a very sick patient that has so far been given medicines to makes its condition worse – austerity. Now is the time for amputations.

Stephen Archer, Business analyst and director of Spring Partnerships