Prospect of New Core Euro Gains Traction

[dkf]

The euro area may need to shrink to survive.

As its sovereign-debt crisis nears a third year and rescue efforts fail to stop the rot in financial markets, economists from Pacific Investment Management Co.’s Mohamed El-Erian to Harvard’s Martin Feldstein say ensuring the euro’s existence may require members to leave the 17-nation currency region.

The result would be what El-Erian, Pimco’s Newport Beach, California-based chief executive officer, calls a “smaller, much better integrated, fiscally strong euro zone.” While leaders such as German Chancellor Angela Merkel consistently rule out that option, El-Erian told “Bloomberg Surveillance” with Tom Keene on Aug. 17 that they eventually may embrace it over the fiscal union required to maintain the status quo.

“We’ve been warned by European policy makers never to underestimate their commitment to economic and monetary union, but that can also be interpreted as perhaps them, in the end, choosing quality over quantity,” said Stephen Jen, managing partner at SLJ Macro Partners LLP, an investment and advisory firm in London. “Political commitments to resolving the crisis cannot be infinite. We can’t have all the chips on the table.”


http://www.bloomberg.com/news/2011-08-21/el-erian-joining-feldstein-fels-on-prospect-of-euro-evolving-into-new-core.html

[Owlet]

1. My friend in Germny..

..would like to see the Eurozone reduced to France, Germany and the Scandinavian nations. And she's not all that keen on France.

She's a graphic designer, not an economist, but she seems to be harking back to the origins of the Euro as a common currency. This appears a bit further down in the Bloomberg article cited above.

"The euro initially was envisaged as the currency for a band of northern European economies led by France and Germany. The project swelled when then-German Chancellor Helmut Kohl and French President Francois Mitterrand decided in the early 1990s that broader membership would deliver deeper economic integration."

I guess we'll just have to wait and see.