Econintersect: Rumors are flying this morning (Thursday, November 10), that the EU (European Union core) might pull the plug on the great experiment and reorganize into a smaller, healthier central organization, surrounded by a more loosely affiliated periphery that would not share the common currency (the euro). One of the reasons for the rumors is that both German Chancellor Andrea Merkel and French Premier Nicholas Sarkozy are reported to have said, in effect, that it might be necessary for Greece to leave the EU to preserve the monetary union. The remarks supposedly came at the G-20 meeting last weekend in Cannes. “This will unravel everything our forebears have painstakingly built up and repudiate all that they stood for in the past sixty years,” one EU diplomat told Reuters. “This will redraw the map geopolitically and give rise to new tensions. It could truly be the end of Europe as we know it.”A Reuters excerpt:
German and French officials have discussed plans for a radical overhaul of the European Union that would involve setting up a more integrated and potentially smaller euro zone, EU sources say.
“France and Germany have had intense consultations on this issue over the last months, at all levels,” a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.
“We need to move very cautiously, but the truth is that we need to establish exactly the list of those who don’t want to be part of the club and those who simply cannot be part,” the official said.
Another Reuters excerpt:
European Commission President Jose Manuel Barroso issued a stern warning of the dangers of splitting the zone, rocked by an escalating debt crisis. EU sources told Reuters French and German officials had held discussions on just such a move.
“There cannot be peace and prosperity in the North or in the West of Europe, if there is no peace and prosperity in the South or in the East,” Barroso said.
Felix Salmon has a blog post entitled “The euro breakup thrill ride begins,” which concludes with:
Martin Wolf says that the eurozone is unlikely to survive. Paul Krugman is saying the same thing. I’ve been saying it too. But one thing’s for sure: a euro breakup is emphatically not priced in to markets. So fasten your seatbelts: it could come sooner than you think.
What’s happening? It is not entirely clear at this point but some (like Felix Salmon, Martin Wolf and Paul Krugman, above) seem to know what should be done. In another Reuters blog, Prof. Laurence Copeland, Cardiff University Business School has titled an Op Ed: “Put the euro zone out of its misery.”
Hat tip to Roger Erickson