Angela Merkel's grim warning comes as the euro is battered with the currency falling sharply and sharp falls on European stock exchanges. What do we all make of this? My thoughts: * The biggest bailout in history hasn't worked. The markets are not soothed. * The Greek finance ministry now says that Greece leaving the euro is "possible" though "not likely". I read this as probable but not quite certain. * There is enormous financial and legal thought going into a managed default (for Greece and others) which involves leaving the euro, and Merkel indeed alluded to this. Options seem to be big bang (a country crashes out overnight) or a planned exit including a period on a temporary currency which is not freely traded. * The "big bang" would become essential if there was a run on the banks. While strictly it would happen at a fixed time (midnight or 1am) it would help a lot if the next day were Sunday (less activity) or even a bank holiday weekend (when is the next bank holiday in Greece?) The "planned exit" appears to envisage an electronic only currency, with shop transactions taking place in some form of coupon. * The Lisbon Treaty has a legal framework which means that if a country leaves the Euro it also leaves the EU. Merkel's logic seems inescapable. If the Euro goes all Eurozone countries de jure leave the EU. * Market worries about Italy have grown in the last few days. Realistically if Greece goes so too do Portugal, Spain and Italy. Ireland may have problems also. * Merkel's comments could be interpreted as "we must do everything to save the Euro". But we all know - and certainly she knows - that we've already done everything. Rather she seems to be warning "When the euro fails then Europe fails". Surely she is giving a first warning of an imminent collapse of the EU. We need to manage that collapse. * That less than a year after the Lisbon Treaty we are contemplating the demise of the EU shows that the Lisbon Treaty has failed. Political hubris created the Euro in defiance of basic economics and imposed Lisbon against the will of the people. Now we need political humility as a way of managing the inevitable collapse. It is going to be dire.