Friday was a momentous day for the grand currency experiment known as the euro. Two explosive pieces of news, both relating to Germany, hit the forex markets hard (and sent the euro tumbling lower). Equities were slammed again too -- on Friday afternoon, the Dow is down 300 points as I write. Europe's problems are the world's problems now. The first shock development, broken by Reuters, was a high-level resignation at the European Central Bank (ECB). Juergen Stark, the "top German official" at the ECB, confirmed he would leave his post before the end of the year. Stark's departure would come almost three years before his official term expires (May 2014). And his reason for leaving?

A disagreement over "euro bonds" -- the printing press crisis solution in which Europe binds itself together financially, by way of the German checkbook. The new uncertainty sent the euro plummeting.   We have written at length about euro bonds in these pages, and the need for a drastic solution to the sovereign debt crisis. In declaring "Europe must become like the U.S.," we were ahead of the curve, with numerous highly placed officials, including former German Chancellor Gerhard Schroeder, talking about a "United States of Europe" not long afterward. That piece stirred up some anger, however, leading to "Germany's Terrible Choice" -- a clarification of the fact that Germany must either "embrace the euro fully and pay its neighbors' bills, or break up the currency to catastrophic near-term result." In other words: Federalization and monetization (via euro bonds) is not the only way to go.

Adopting a more unified monetary regime does not have to be Europe's destiny. But it is the only way to avoid mayhem in the here and now. UBS, a large investment bank, has even warned of trade collapse, domestic banking collapse, and the threat of civil war as a possible cost of break-up. The second piece of news to hit Friday, fueling a record rise in credit-default-swap values, was Chancellor Angela Merkel's plan to "shore up German banks" in the event that Greece defaults. Via Bloomberg: The emergency plan involves measures to help [German] banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece's bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. "The euro cannot be allowed to fail, it won't fail," says Chancellor Merkel. Yet behind closed doors, that possibility is being considered.

There is no telling where a Greek default might lead -- and confirmation of such could be possible by the time you read this. Macro Trader subscribers were given the green light to short the euro early last week (before the major meltdown happened). The euro has been stuck in a congested range against the $USD since May 2011," we wrote. "We have been standing aside waiting for that range to end, and now there are signs of resolution." So what happens next? The smart money is still on some form of printing press outcome, in which the European Central Bank gives up its "hard money" ways and takes a page from the Federal Reserve. The Swiss tried to shoulder the pain of a too-strong currency, but eventually threw in the towel.

The European Central Bank likewise hates inflation, but they may hate the prospect of a 1931 Credit-Anstalt-style financial collapse even more. A banking meltdown and the threat of eurozone depression cannot be written off. All of this suggests the "core" countries will be dragged, kicking and screaming, to the forced embrace of a printing press solution... to the long-run result of a much lower euro.