1) Real estate markets begin to overheat
2) Various Western governments, at their banks urging, pour fuel on the fire
3) Debt to income ratios skyrocket throughout most of the Western world.
4) People start defaulting, especialy in the US, and or radically start to reduce spending.
5) Banks saddled with huge looses. Capital that had been invested in Europe's peripheral countries goes back to the core.
6) Governments bail out banks in what is surely the biggest transfer of public monies to private companies in history.
7) Bankers say it is high time the public stop living so high on the hog and that services need to be cut and or taxes raised to pay for, drum roll please, bank bailouts.
8) Governments cut services and or raise taxes.
9) GDP tanks and unemployment skyrockets in those countries making the biggest cuts. Banks wonder about the ability of those making the biggest cuts to pay. EU employs a carrot and stick approach. It promises private banks bailouts; that is the carrot. At the same time it promises dire consequences if the PIIGS do not make bigger cuts and rise taxes even more; that is the stick.
10) As the main reason the PIIGS minus Italy have been hit so hard is because of the massive amount of capital leaving those countries in wake of the 2008 downturn, more cuts will make things even worse? The first round of cuts and tax increases in Greece increased the deficit by 8%.
11) Faced with a terrible economy, tax hikes and service cuts, people in the PIIGS start defaulting in ever larger numbers?
12) The rise of the Swiss Franc leads to increasing number of defaults in Poland, Slovakia, Hungary and the Czech Republic? 53 percent of outstanding mortgages in Poland and about 60 percent of those in Hungary are denominated in Francs!