15th November 2011
In France, for instance, GDP increased 0.4pc from the second quarter, reports the Daily Telegraph. Meanwhile, Germany was also sprightly, with growth expanding by 0.5pc between July and September compared with the preceding three months.
The discussions among senior policymakers on the idea of setting up a more integrated and smaller eurozone raises the possibility of one or more countries leaving – while the strong core pushes forwards towards deeper economic integration, including on tax and fiscal policy.
But would this see France and Germany as the core nations?
Their leaders, clearly, consider these countries to be strong members of the new eurozone, while their peripheral cousins suffer crisis during economic turmoil.
However, Mindful Money's economist blogger Shaun Richards considers France's economy on the rocks.
He says on his blog: "Back in the second quarter of this year France's economy grew by 0.9% no doubt to a chorus of "Vive La Republique"! However the European Union has just forecast that growth in total will only be 1.6% in 2011 overall – which is quite a slowdown from such heady levels. Even worse, the forecast for 2012 is for only 0.6% growth.
He adds: "The sovereign debt crisis has severely impacted French banks, making them look exposed and vulnerable. Now not all this exposure was by French banks but of course worries then come about for other French financial institutions as well. The Bank for International Settlements also published figures suggesting that France had exposure to some 300 billion Euros of Italian debt which in her current problems is an unsettling amount…
"So, the financial future for France has the shadow of its banking sector hanging over it with investors wondering if other banks will go the way of Dexia and need support from her taxpayers."
Recently, the eurozone crisis reached a critical stage when Italy joined the seven per-cent club, the group of euro-zone countries whose borrowing costs (as measured by ten-year bond yields) have gone above 7% and stayed there.
Ray_Fletcher comments on the blog: "Shaun – a slight aside; the Franco/German discussions on a "core EZ"…in two years both the current actors may well be history. Is this dialogue (as seen from Sarkozy's point of view) a smokescreen in that he knows full well the current and future position of France and by entering into these discussions aims to pull France out of the fire by riding on the coat-tails of Germany?"
Meanwhile, Rods comments: "If the banking and sovereign contagion puts France and Belgium into the Southern European club will they be known collectively as the FIBPIGS in the best traditions of Greek financial reporting or the BIFPIGS where France likes to throw its weight around in Europe and on the world stage?"
So with other economies on the brink – is the concept of a ‘core' eurozone feasible?
Peripheral countries like the PIIGS would likely oppose a move to shrink the eurozone to a ‘core'. Doing so would inhibit their access to the financial strength of economic powerhouses like Germany and France, for starters. The Netherlands and Austria would also be likely to mount staunch opposition even though both would be on the short list to join such a core eurozone.
The very concept of a ‘core eurozone with only strong countries', is a joke, believes Joe Weisenthal on his Business Insider blog. Among his arguments, he says this would result in the following: "The value of the "core euro" would surge, rendering it uncompetitive and prohibitive for Germany's export machine.
"Even in the union of a few countries, you'd still have the problem of the fact that no one country has currency sovereignty… they'd still potentially be able to run out of money. Just imagine if a French bank got wobbly, and everyone rushed their money into German banks, France would be up a creek…"
He concludes: "Ultimately, Eurozone leaders still think their problem is the "debt" of some countries. It's not. The problem is their broken monetary system."
But could the eurozone still shrink?
Reuters reports the possibility of "one or more" countries leaving the eurozone, however analysts have long speculated that the eurozone could shrink even more markedly. "Such a transition could be dramatic, with speculators gambling against states that decide or are forced to leave the currency", says another report on Business Insider.
Even so, EU leaders could be forgiven for wanting to confine the damaged economies of Ireland, Portugal, Spain, Italy, Greece and even Belgium to the sin-bin.
Hasn't the financial crisis already created a multi-tiered Europe?
In truth there is already a two-tier Europe. A three-tier one, in fact according to blog Europhrenia. "The inner core is the eurozone. Around this are the non-eurozone states, though these fall into the distinct two categories: refuseniks such as Britain and not-yet-niks like Poland. The third, outer tier consists of Romania and Bulgaria, whose citizens are not allowed to freely migrate to every other EU state.
"If you wanted to, you might even call the Germanic economic core of Europe a tier, so how many is that, then? Four tiers? What about France, which is neither in relatively good shape like Germany, nor is it on the brink of bankruptcy as Greece is. Five? What about Denmark? Is it in or out of the Schengen free-travel arrangement? Six?"
So what, in reality, will happen to Europe?
Any changes to Europe's make-up will be slow, which amounts to a continuation of how leaders have already tackled to the crisis. Talk of a break-up of the euro, or even of the Eurozone itself, might be hitting the headlines. In reality, Europe is looking at an impending recession before restructuring, warns Azad Zangana, chief economist at Schroders, that will spread elsewhere.
He told Sky News: "We are already seeing early signs of a European credit crunch with European banks impaired and struggling to raise finance on the capital markets, and as a result they will be forced to reduce lending to the real economy, and what do you get when that happens? A recession."
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