It is important to put what is happening in the Eurozone into perspective. The following shows the percentage make up of some of the Euro nations to the overall European GDP:
Portugal 1.8 % of GDP
Greece 2.7% of GDP
Ireland 3.1% of GDP
Italy 17% of GDP
Spain 12% of GDP
France 21% of GDP
Germany 27% of GDP
As you can see, Portugal, Greece, and Ireland make up a very small percentage of the toal European economy. In that sense, letting them default would not have a major impact on the Euro union.
However, there are other important factors to consider.
The most important is the banking system. As I am typing today, Euro's are being pulled from Greek and Spanish banks and placed in German and French banks. The thinking is that if Greece and /or Spain leave the Eurozone to once again issue drachmas and pesetas, their revamped currencies will be traded at a discount to Euros. Therefore, to avoid losing purchasing power from this possibility, Euros are moving out of banks from south to north.
Thus, as the sovereign debt crisis spins out of control, it may cause banking crises in Greece and Spain, as well as the other weak spots in the eurozone, namely, Portugal, Ireland, and Italy.
For this reason these countries will be protected. Instead they will face a devaluation of their currencies, meaning that money will be printed to cover the debts.
This was discussed this week by the world's top bond manager, Bill Gross. You can fast forward to the five minute mark for that particular discussion:
Last week I discussed how the eurozone compares to the United States, and why this crisis is an enormous buying opportunity for gold and silver.