Turbulence and possible turmoil are now again stalking the eurozone. The French Presidential elections have ushered in a new Socialist President wedded to a commitment to re-negotiate the hard-won EU Fiscal Treaty

The Franco-German ‘Merkozy’ double act that has held the eurozone together may be severely strained. The government of The Netherlands, one of the strongest economies in Europe, has collapsed, unable to agree on a package of austerity measures. German output has fallen for the first time. Spain’s troubles (including overall unemployment of almost 25% and a youth unemployment rate of more than 50%) look progressively more bleak. And to cap it all, Greece’s elections have produced a majority of parties eager to re-negotiate, or at best fudge, the recently agreed bailout package.

The eurozone’s problems, far from being resolved, appear to be getting worse. The point may be reached when it may not any longer make sense to bail out bankrupt eurozone countries. It is becoming clear that the European Union may simply be putting sticking plaster on a dying patient. The end-game for the euro will be the exit of those countries which should never have joined and cannot survive in it.

Most lack the ability to grow while tied to the euro because they are uncompetitive, heavily indebted and with shaky banking systems. Unable to devalue their currencies, struggling eurozone countries are trying to regain competitiveness by pushing down wages and prices. But as voters rebel against the pain and politics turns against austerity – as it has already done in France, Greece, the Netherlands, Italy and Spain – the prospect of the survival of the single currency to which Malta is inextricably tied diminishes.

But are we “inextricably” tied? As the eurozone remains vulnerable to new shocks, common sense suggests that our political leaders – both Nationalist and Labour, for who is to know which of them will have to deal with the crisis when it breaks – and Ministry of Finance policy-makers should be drawing up contingency plans on how to manage a break-up of the euro if it occurs. More advanced countries may already secretly be doing so, but having described a break-up as bringing economic apocalypse to Europe, leaders dare not be seen to be planning for it.

In Malta, contingency planning is not our strongest suit. We prefer to rely on an all-seeing and all-knowing God who has saved us from disaster in the past and will do so again if asked. Real life of course is not like that. We should plan for the worst and hope for the best.

As a British think-tank, Policy Exchange, has shown, managing the exit of any euro member, albeit complex, would be possible. Malta should be preparing its own contingency plans against that eventuality. Just recently, Policy Exchange announced a shortlist of contestants for a prize for the best plan to manage a break-up of the eurozone. It may be indicative of the magnitude of the task that it did not declare an outright winner, but instead invited those on the shortlist to further refine their ideas and to re-submit the results.

Our policy-makers should be examining the options proposed and adapting the elements best suited to Malta’s own circumstances to a fully-fledged contingency plan. I set out below a summary of some of the possible options for contingency plans as outlined in The Economist.

The striking thing to emerge from the proposals is that there have been some 70 currency break-ups in the last century, and most have not led to long-term damage. Drawing on the lessons from the end of the Austro-Hungarian empire, one entrant sketches out a possible scenario for the departure of the likes of Greece. His formula can be summed up in the phrase: Depart, default and devalue. A surprise announcement is made over the weekend and all deposits are re-designated in new drachmas while the banks are kept closed. Capital controls are imposed to prevent the flight of money abroad. For cash, the country leaving the zone first uses existing euro banknotes defaced with ink or a stamp. These are gradually withdrawn as drachma notes are printed. Border checks restrict the export of unstamped euro notes. Financial institutions are given time to up-date their software.

Another entrant considers it would be better to start with the departure of Germany and other strong economies, such as The Netherlands. But however it happens, fragmentation will create both winners and losers, with many bankruptcies and legal nightmares. Those involved in cross-border financial activity will find that their assets and liabilities change value and the sums involved will be so large, and the litigation so ruinous, that the best option would be to abolish the euro as soon as one country leaves the zone so as to invalidate all euro contracts.

Unlike those entrants who favour secrecy in all such plans, another entrant argues that open contingency planning would actually reduce uncertainty. Disruption would be minimised by converting all euro contracts to a modified form of European Currency Unit (ECU), the basket of national currencies that came before the birth of the euro.

The last entrant proposes unscrambling the euro “omelette” by splitting the euro into two or more zones, consisting of the weaker “yolk” and the stronger “white”. If this course were to be adopted, it underlines the message that the sooner we start strengthening our ties with Berlin to ensure we were considered with the stronger “whites” and not with the southern “yolks”, the better. We need to start getting our diplomatic skates on for, although Malta is geographically a southern country, our economic performance in this crisis has put us with the northern angels. We need to be hammering this message home or we shall be left politically and economically stranded.

Under the omelette solution, all the euros in all the eurozone countries would be converted into a fixed combination of the “white” and the “yolk”, while over time the weaker yolk would be devalued against the stronger white. Savers would thus be protected, initially at least, and capital flight to other eurozone countries would be discouraged.

So there we have it. A range of possibilities for our technocratic policy-makers to be thinking about. The fate of the euro will be decided by politics as much as economics. Any one of the eurozone’s 17 members may rebel at the loss of sovereignty and the unrelenting pressure of austerity measures on its citizens involved in saving the currency. There are already clear signs that this is happening throughout Europe and there is a high likelihood of Greek default when the next bailout becomes due. The worst outcome would be a chaotic, unplanned break-up.

Malta must decide how best to handle its own contingency planning. But that there should be contingency planning put in hand must now be beyond doubt. It would be irresponsible if it were to be otherwise. Our political leaders – both government and Opposition, for this could soon be the latter’s problem – have a responsibility to think the unthinkable no matter how unpalatable the outcome.

Martin Scicluna is the

Director General of Malta’s only independent think-tank, the

Today Public Policy Institute.

He writes here in his personal capacity