Sorry, there is no euro break-up plan – yet

The Telegraph ^ | 11/10/2011 | Ambrose Evans-Pritchard

[bruinbirdman]

Reports of plans for a break-up of the euro are premature

Very quickly, I have grave reservations about the Reuters story claiming that top German and French officials have had "intense consultations" on plans to reshape or "prune" the currency bloc, reducing it to a manageable core.

The Brussels press corps do not believe it. Nobody seems to know which German official is briefing behind the scenes that "you’ll still call it the euro, but there will be fewer countries."

The claims do not remotely reflect the stated position of Chancellor Merkel and President Nicolas Sarkozy. Merkozy might like to see Greece tossed to the wolves. That is a different matter.

There is a drive for a core Europe or "Avant-Garde" that pushes ahead with closer union, but that is mostly directed against the UK and other members of the awkward squad. Reuters seem to have conflated two separate issues.

The reality is that EU leaders are still unwilling to contemplate an orderly break-up of monetary union, or to deploy the system’s dwindling reserve of credibility to prepare for this traumatic moment.

To the extent that the Reuters story catches one vein of thought in EU capitals, it is about forcing weak states to leave EMU. This is the worst possible outcome. It can only set off a chain reaction, ultimately engulfing France. At that point the whole eurozone would spiral into a catastrophic depression – if it is not already. Germany itself would be ruined.

My own proposal – like that of Hans-Olaf Henkel, the former head of Germany’s BDI industry confederation – has long been for a radically different kind of break-up. Germany and its satellites should leave, bequeathing the euro, the ECB and other EMU institutions to a Latin union led by France

[p. henry]

I found this article amusing until the author expressed the opinion that, by relfating, the EMU could lift European GDP growth fairly quickly to more than 5% annually.

What nonsense.

[dfwgator]

Send in Yoko, after all she broke up The Beatles.

[bruinbirdman]

"by relfating, the EMU could lift European GDP growth fairly quickly to more than 5% annually. What nonsense. "

The same observation was posed to AEP in the comments. This is a blog.

mattdedasc
10 hours ago

"Ambrose, I take issue at this statement: "The EU must slow the pace of fiscal contraction and launch a monetary blitz to lift the south out of chronic depression. A 5pc nominal GDP growth target for euroland for as long as it takes would do the trick. I believe central banks have the capability to deliver such result.".

Central banks cannot deliver 5pc of GDP. They can possibly print enough money for GDP to inflate by 5pc, but that's another story altogether.

It will not change anything about the structural problems which will be still there.

ambrose_evans_pritchard
10 hours ago

"I said "nominal GDP". Crucial distinction.

The Bank of England is already implictly targeting 5pc nominal.

The point about 5pc nominal targeting is that it does not try to manipulate the price variable. (How the cookie crumbles between growth, unemployment, and inflation is determined by events, government action, fiscal policy, etc, not by the central bank.)

It creates a much better long-term anchor."

yitbos