The raging financial crisis has hit the economic and budgetary outlooks of European countries hard. Latest forecasts from the European Commission are for a deep recession in 2009, continuing in 2010, and for the public debt ratio of eurozone sovereigns to rise to 76% in 2010, from 66% in 2007.

Brussels officials and national ministers are not the only ones to take fright at the potential fall-out from the rapidly deteriorating environment. Markets too have taken a dim view on sovereign solvency and have begun to pick on what they think are the most vulnerable sovereign candidates.

Investors and commentators are asking more fundamental questions, going to the core of the euro project. Previously the domain of maverick political movements such as Italy's Northern League, speculating on the possibility of a break-up of the eurozone has suddenly entered mainstream economic and political debate.

To make it very clear: it will not happen. Not only do the exit theorists gloss over the fact that eurozone membership remains a profoundly popular proposition with countries from Iceland to Bulgaria trying to join; more importantly, they appear to ignore that governments' incentives are skewed against a euro exit.

Assume a highly indebted EMU government looking for a shortcut to regain economic competitiveness and growth and reduce the burden of state debt. Exiting the eurozone and letting the newly adopted national currency depreciate sounds prima facie like an attractive quick fix. Exports and growth would get a boost, external imbalances shrink, employment recovers and with it tax revenue.

However, this strategy would at best be a dog's breakfast and a recipe to undermine sovereign creditworthiness at worst. The initial appeal of an export-led recovery would soon fizzle out. A nominal depreciation does not address the underlying structural causes for lack of competitiveness. Domestic price, wage inflation and a rise in domestic interest rates would soon erode the rejuvenating effects of any temporary shot in the economy's arm, requiring further depreciation and so on.

This solution has been tried, tested and unequivocally found wanting by several southern European sovereigns in the pre-EMU era who then went to great lengths in the 1990s to qualify as eurozone members.

Exiting the euro, while perfectly possible under international law, is also immeasurably more difficult than joining. Households' and companies' efforts to circumvent conversion of their assets (and wages) are likely to lead to a severe crisis in the country's financial system, similar to the Argentinian experience when that country's banks' assets were converted at a less favourable exchange rate than its deposits. The cost of enforcing contracts still denominated in euros would also shoot up as litigation becomes widespread, raising the cost of doing business and undermining trust in the rule of law, which would tarnish the business environment for many years to come.

Sovereign creditworthiness is almost certain to suffer for countries exiting the Eurozone. S&P estimates suggest that opting to go it alone could lower the sovereign rating of Greece by four notches into non-investment grade territory and those of Portugal, Spain and Italy by two to three notches. And this is in a benign environment where the euro exit happens without severe political or banking crises.

An even worse scenario would be if exiting governments were to redenominate their euro debt and pay investors in the new currency. This would be a case of outright default as it constitutes a unilateral adjustment in the contractual agreement.

Look at the situation in Ireland. Given that its competitiveness has suffered in recent years due to high wage growth and exchange rate movements, especially weaker sterling, it may be tempting to think that exiting the eurozone and regaining monetary and exchange rate policy could be a tempting policy option.

However, Irish politicians understand perfectly well that this 'cure' would be worse than the disease. For a wide open economy like Ireland's, exchange-rate volatility would be an additional affliction and the borrowing costs for households, corporate and public debtors would increase markedly.

As the Irish economy is among the most leveraged in the OECD, this would almost certainly exacerbate the domestic recession and put additional stress on the national banking system. Sovereign creditworthiness would slide and private bankruptcies proliferate as the euro debt would have to be repaid in a devalued national Irish currency. This is not an appealing prospect indeed.

Moritz Kraemer is managing director at Standard & Poor's ratings services