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We have great news.  According to the EUobserver (eeeee-uuuuuu), the euro has weathered the debt storm.

The source of this optimism is European Commission chief Jose Manuel Barroso:

In a speech given to Portuguese diplomats in Lisbon on Thursday (3 January), the former Portuguese leader said that "the perception of risk in the eurozone has disappeared."

He added: "Investors have understood that when European leaders commit themselves to doing everything to safeguard the integrity of the euro, they mean business."

His speech comes after Portugal earlier this week became the latest EU country to break ranks on economic policy.

Of course there is nothing the "European leaders" can do other than support and encourage the European Central Bank to print more euros, much like our own Federal Reserve.  Essentially, the German government, along with the Finns and others of the northern tier, are willing to go along with the ECB using their money to buy worthless Portuguese, Spanish, and Greek bonds.

The Portuguese are not happy with the measures that have been imposed as part of the bailout deal, nor are the Greeks or anyone else in the southern tier on whom the EU is trying to impose a measure of restraint and frugality now known as "austerity".  The natives, indeed, are restless. 

Again quoting from the EUobserver:

For his part, Barroso acknowlegded that his native country is facing "a true ... social emergency."

Amid criticism that EU-mandated austerity has caused a spike in unemployment across the Union, he conceded that the commission is "willing to analyse the completion of programmes and to make adjustments and do the fine-tuning necessary to minimise social costs."

But Barroso's remarks reflect a growing belief among EU officials that market pressure on the single currency is starting to abate.

Last month, German finance minister Wolfgang Schauble also told reporters the euro has survived the worst of the crisis, following a buy-back deal on Greek bonds.

L'état, c'est moi, Louis XIV said.  That did not work out so well for Louis XVI.  But I doubt the euro is going to survive two more generations, and Barroso's remarks are more akin to Marie Antoinette's possibly apocryphal, Let them eat cake, anyway.

The dollar's problems, including the Fed's promise of continued QE and the re-election of the incompetent little tyrant, NMP Obama, have contributed to euro stability over the last few months.  That euphoria-by-contrast will not last much longer.  The happy talk from EU leadership is just another sign that the euro is in trouble.

I heard a phone message the other day from one of my not-so-bright relatives (one of many) who remarked that she planned on dropping by "... if you were home.  But I guess if you're not home, you're not home."  It was really flawless logic on her part, expressing insight better than I would have expected from her.  In fact, I would say that my cousin with her modest two-digit IQ is possibly smarter than the EU officials who think that what EU officials think is the same as reality.

My prediction is that Greece exits the EMU before the end of 2013.  There will be at least one city in the southern tier --  not counting Athens, my money would be on Madrid, although apparently Lisbon is in the running -- that experiences major riots and unrest with lots of burning cars and buildings.  Parts of Paris in flames would not surprise me.  The real world is always shocking to the elites who think they have everything under control. 

Update:  Speaking of things that could get out of control -- yesterday morning U.S 10-year bonds were at 1.84 when I posted.  They ended the day at 1.91.  Now they are at 1.93.  While it is still not panic time, this can become significant.  Payment of the interest on debt is absolutely essential.  The U.S. rate is still very low compared to some other nations, but our debt load is much higher than that of anyone else -- and growing.  Dramatically.  Every day.  That debt has to be serviced. 

A 2.00% loan rate doesn't sound bad, does it?  Well, what if your income is (to make the numbers easy) $1000 and your debt is $100,000 and your rate is 2%?  Not so good. 

Our rate is creeping up despite the frenzied Fed's purchases, i.e., manipulation on the demand side which inflates the bond price thus suppressing the rate.  Except now, that manipulation might not be succeeding as well as in the past.  The likelihood is that rates will stabilize and even fall back in coming days as investors settle into the recent escalation in taxes and the failure to cut spending.  Nevertheless this should be a warning to the prudent of the awful abyss that lies beneath the thin ice of Washington bluster and bravo sierra.