Realization the Eurozone is no longer tenable is at long last at hand. In
fact, "intense discussions" have been underway for months but are
just now admitted to by senior EU officials.
Bloomberg reports U.S. Stocks Extend Declines
on Concern Nations May Exit Euro
stocks extended declines following a report that German Chancellor Angela
Merkel’s party wants to make it possible for European nations to exit
the euro area.
Merkel’s Christian Democratic Union party wants to make it possible for
European Union members to exit the euro area, Handelsblatt
reported in a preview of an article to be published tomorrow, citing unnamed
participants in the discussion.
A commission within the party, that is crafting a framework to be presented
at a party meeting, has proposed allowing a euro member who doesn’t
want to or isn’t able to comply with the common currency rules to leave
the euro region without losing membership in the EU, the newspaper said.
France and Germany
have "Intense Consultations" on Smaller Eurozone
Please consider French and Germans explore
idea of smaller euro zone
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
"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.
The change has been discussed on an "intellectual" level but had
not moved to operational or technical discussions, the EU official said.
A French finance ministry spokesman denied there was any project in the works
to reduce the currency bloc's membership.
"There have been no conversations between French and German authorities
at any level on decreasing the size of the euro zone," the spokesman said .
A radical overhaul of the European Union would be opposed by many members.
"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
Anything Until It's Officially Denied
We now have an official denial from France that breakup conversations are
taking place. This contradicts an admission by others that such discussion are taking place.
According to the 1980's British sitcom Yes Minister, "The first
rule of politics,” Sir Humphrey, the wily civil servant in the show,
insists is: “never believe anything until it is officially
Eurozone Breakup Inevitable, But How?
The Eurozone is a failed experiment. A breakup is
inevitable just as it has been from the beginning. Structural flaws were too
great, built up over the years. No currency union in history has ever
survived unless there was also a fiscal union.
The German supreme court has ruled out a fiscal union and printing unless
German voters approve (and they won't). Please see Germany's Top Judge Throws
Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution
and Popular Referendum for Further Powers for details.
The Italian bond market revolt (see Yield Blowout, Bond Market
Emphatically Rejects Italy's Solution; No Place to Hide) and the collapse of
Greece says the breakup is sooner rather than later. However, politicians
have a propensity to kick the can down the road longer than anyone thinks
The key question now is how?
It would be best for all involved if Germany left the Eurozone
and went back to the Deutschmark. Germany would have an immediately credible
currency. Should Greece or Spain leave first, those countries might
experience hyperinflation or massive inflation.
Breakup Scenarios and Logistics of Denial
For further details discussion of various breakup scenarios as well as a
discussion on the "Logistics of Denial", please see my September 16
article Eurozone Breakup Logistics (Never Believe Anything Until It's
It's important to remember that Germany suffers regardless. As long as the Eurozone stays intact (it can't and won't over the long
haul) German taxpayers have to keep acting bailing out foreign countries,
foreign banks, and their own banks.
On the other hand, were Germany to leave, the debts to German banks will not
be paid back in Deutschmarks but rather deflated Euros.
On the whole, Germany exiting the Eurozone would be
less disruptive, than massive inflation scenarios in Greece, Portugal, and
If France wants to stay in the Euro, let them. They can have the ECB as well.
Then the ECB will print money to bail out the French banks (just as French
president Sarkozy wants).
Sarkozy may not want a collapse of the Euro, but it
would happen. The message here is simple: If you are in Euros, get the hell