In the second half of the 1990s, Argentina, Brazil & the US were in a weird disfunctional currency union of sorts. Brazil was soft-pegging to the dollar, Argentina was in the midst of their “convertibility” monetary regime, so the three countries had a common exchange rate and no central fiscal authority. Also, the central bank for the “union” i.e. the Fed, was setting a US-centric policy.
Does any of this sound familiar?
So what happened? Between dollar appreciation and higher inflation in Brazil and Argentina, both the Real and the Peso became more overvalued. Brazil was the first to crack in 1998, devaluing the Real and breaking the peg. Their trade balance with Argentina (who was their main trading partner) improved and they obviously had gained a competitive advantage over Argentina in any third market export competition.
Argentina, with the incredibly arrogant finance minister Cavallo and his enablers at the IMF, hung on for a couple more years, just long enough to sink the Argentine banking system, but the Brazilian devaluation was the real death blow to convertibility (in my view). The IMF just made it worse by repeatedly refusing to cut Argentina loose.
The moral of the of story?
I think if one of the eurozone countries exits, others will as well. The departer / devaluer will gain a big export edge. further hurting the remaining marginal countries and putting more pressure on them to follow suit. This pressure will be even stronger in Europe than in Latin America because the Euro countries are far more open that were Argentina / Brazil.
With no central fiscal authority and a monetary policy that is completely inappropriate for them, following the first mover to the exit would likely be their only real option.