Some of us have been talking it over, and here’s what we think the end game looks like:

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

And we’re talking about months, not years, for this to play out.

George Soros has warned that the eurozone has entered a “more lethal phase” and outlined a series of measures to solve the crisis - including an idea that all countries should be able to refinance their debt at the same interest rate.

Soros, known as the man who broke the Bank of England by betting that the UK would be forced to devalue the pound during the 1992 currency crisis, said that “far from abating, the euro crisis has recently taken a turn for a worse”.

Soros, who is chairman of Soros Fund Management - which in 2011 stopped managing money for outside investors - warned that Europe was facing “a long period of economic stagnation or worse” whether or not the euro endures. He also warned that while countries in Latin America suffered a lost decade after their economic crisis in 1982, the European Union would not survive such an economic malaise.

“The deflationary debt trap threatens to destroy a still incomplete political union,” he said in an article published in the Financial Times.

And so, once again, we see failings of economic logic creeping back into Europe. The reason that Spain’s economy is suffering is because the government sector is attempting to de-leverage in the face of the same behaviour from the private sector after the collapse of the Spanish housing market. You can obviously point to all sort of things that happened in the past and claim they never should have been allowed to occur. Where were the bank regulators? The macro-prudential oversight? The fiscal policy in order to push against the housing bubble? All good questions, but none of them change the fact that the Spanish economy is demonstrating its current behaviour because of the government sectors attempt to lower its deficit.

*gulp*

Not likely…

The real issue for the finance ministers is to try to fit the ever-deteriorating Greek numbers within two self-imposed conditions. One is that the restructuring of Greece’s debt should reduce its burden down to “about 120% of GDP” by 2020. The other is that that the contribution of governments to the second package should be €130 billion (including some funds left over from the first €110 billion bail-out) after the “voluntary” losses being negotiated with Greece’s private creditors*. Both are somewhat artificial figures. The debt ratio of 120% was chosen because it is the level of Italy’s debt; the contribution of €130 billion was decided in October, so cannot be changed for fear of giving the impression that Greece is a “bottomless pit”.

But as matters stand at the start of the meeting, the package would leave Greece with a debt burden of 129% of GDP – too high for many of the creditors. Tonight’s homework for the ministers will be to fill the remaining fiscal hole: by convincing the ECB to forego profits on the bonds it bought at a discount (it has more or less agreed to do so) and perhaps by reducing the interest rate that Greece is charged by its creditors…

But even if a deal is agreed tonight, big questions remain. How long will it be before Greece must come back for still more money? And if it must be kept permanently under threat of default, what is the chance of restoring the confidence needed to help Greece recover? For now, the ministers seem ready to play for time, in the hope that Italy and Spain can be stabilised. They will no doubt express confidence that the Greek problem has been settled once and for all. But sooner or later, they will be back for more crisis talks.

Now it is certainly the case that once in the euro, exiting it is not a path any government would willingly contemplate. Without the second bailout of €130bn, Greece would not have had the money to redeem the €14bn of bonds which fall due on 20 March. The resulting default would mark the start of a process of national bankruptcy which in the first order would mean state pensions, wages, contracts and medical bills not being paid. From there, the insolvency would multiply outwards into the already deeply impaired private sector, where many businesses would find it impossible to stay afloat.

To exit the euro would further savage the private savings market, much of which would be wiped out by devaluation and cascading bankruptcy. An immediate, and violent economic contraction would occur, followed in short order by a likely inflationary tsunami.

The first wave of the inflation would come from devaluation, the second from compensating wage demands, and the third from a central bank forced to monetise the still yawning budget deficit.

It is no surprise, then, that Greece’s technocrats, backed by a substantial majority of its existing politicians, have turned their back on such a course.

But is it really any worse than the one chosen? Repeated rounds of austerity are proving self defeating, which makes it virtually certain that Greece will eventually have to come back for more. What are Europe’s paymasters to demand then?

By definition they’re not black swans yet, but that doesn’t stop MacroBusiness from hypothesising about some black cygnets that could end up being very ugly ducklings for the European economy.