Interesting timing and while still in formative stages Reuters reports there appear to be talks beginning for a tighter core Euro, which I guess implies getting rid of these unpleasant folk at the fringe. Even if true, this would take YEARS to play out – so it’s not anything of a solution but an interesting concept. Those who remain would be much more tightly bound together… still seems like a long shot as it would require giving up a lot of autonomy over each specific European country.
- German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say.
- French President Nicolas Sarkozy gave some flavor of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe — the euro zone moving ahead more rapidly than all 27 countries in the EU — was the only model for the future.
- The discussions among senior policymakers in Paris, Berlin and Brussels go further, raising the possibility of one or more countries leaving the euro zone, while the remaining core pushes on toward deeper economic integration, including on tax and fiscal policy.
- A senior EU official said changing the make-up of the euro zone has been discussed on an “intellectual” level but had not moved to operational or technical discussions, while a French government source said there was no such project in the works.
- Such steps are also opposed by many EU countries, whose backing would be needed for any adjustments to the bloc’s treaties, making them anything but a done deal.
- “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 is not about a two-speed Europe, we already have that. This will redraw the map geopolitically and give rise to new tensions. It could truly be the end of Europe as we know it.”
- Nonetheless, the Franco-German motor has generally been the driving force in steps forward for European integration. To an extent the taboo on a country leaving the 17-member currency bloc was already broken at the G20 summit in Cannes last week, when German Chancellor Angela Merkel and Sarkozy both effectively said that Greece might have to drop out if the euro zone’s long-term stability was to be maintained.
- But the latest discussions among European officials point to a more fundamental re-evaluation of the 12-year-old currency project — including which countries and what policies are needed to keep it strong and stable for the next decade and beyond — before Europe’s debt crisis manages to break it apart.
- In large part the aim is to reshape the currency bloc along the lines it was originally intended; strong, economically integrated countries sharing a currency, before nations such as Greece managed to get in. “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. “In doing this exercise, we will be very serious on the criteria that will be used as a benchmark to integrate and share our economic policies.”
- One senior German government official said it was a case of pruning the euro zone to make it stronger. “You’ll still call it the euro, but it will be fewer countries,” he said, without identifying those that would have to drop out.
- From Germany’s point of view, altering the EU treaty would be an opportunity to reinforce euro zone integration and could potentially open a window to make the mooted changes to its make-up.
- EU officials have told Reuters treaty change will be formally discussed at a summit in Brussels on December 9, with an ‘intergovernmental conference’, the process required to make alterations, potentially being convened in the new year, although multiple obstacles remain before such a step is taken.
- “This is something that has been in the air for some time, at least in high-level talks,” said one EU diplomat. “The difference now is that some countries are moving forward very quickly … The risk of a split, of a two-speed Europe, has never been so real.
- In Sarkozy’s vision, the euro zone would rapidly deepen its integration, including in sensitive areas such as corporate and personal taxation, while the remainder of the EU would be left as a “confederation,” possibly expanding from 27 to 35 in the coming decade, with enlargement to the Balkans and beyond.
- France and Germany see themselves as the backbone of the euro zone and frequently promote initiatives that other euro zone countries reject. The idea of a core, pared-down euro zone is likely to be strongly opposed by the Netherlands and possibly Austria, although both would be potential members.
Trader Mark is the author of Fund My Mutual Fund.
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