Are France And Germany Planning A Smaller Eurozone?

Conflicting reports have emerged in reputable news sources on whether stronger eurozone economies such as France and Germany had already been in discussion over the possibility of creating a smaller but more integrated eurozone, which would see a drastic overhaul in the European Union system.

Conflicting reports have emerged in reputable news sources on whether stronger eurozone economies such as France and Germany had already been in discussion over the possibility of creating a smaller but more integrated eurozone, which would see a drastic overhaul in the European Union system.

On Wednesday afternoon, global news agency Reuters quoted “a senior EU official in Brussels” who informed them that, “France and Germany have had intense consultations on this issue over the last months, at all levels.”

[quote]”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,” said the official, who spoke on condition of anonymity due to the sensitive nature of the discussions.[/quote]

Reuters’ source added that while these discussions had been kept purely on an “intellectual” level, senior policymakers in Paris, Berlin and Brussels were considering the possibility of one or more countries exiting from the euro zone, leaving the remaining core to push on toward deeper economic integration, including on tax and fiscal policy.

The report seem to go in line with public statements made by German Chancellor Angela Merkel and French President Nicolas Sarkozy last week, who raised the prospect of a member state leaving the euro – claiming that then Greek Prime Minister George Papandreou’s plan for a national referendum over its bailout deal would be in-or-out vote on euro membership. Papandreou later pulled the ballot, and subsequently announced his resignation from his post. 

However, less than a day after the Reuters report, a French government official came out to deny the claims made by the global news agency, telling Bloomberg that any speculation of the sort was “ridiculous” and there had been no plans whatsoever to shrink the 17-nation euro region. 

Adding to the confusion was an emailed statement made by Germany’s Finance Ministry that had been made in direct response to the report. While the ministry claimed that the report had been “rumours” that were  “unfounded and wrong”, the statement added that eurozone leaders had asked European Union President Herman van Rompuy, European Commission President Jose Barroso and Luxembourg Prime Minister Jean-Claude Juncker – who chairs meetings of euro-region finance ministers – to present an interim report that would include “the question of possible treaty changes” and “a time frame for the further strengthening of the euro zone.”

 [quote]“This discussion is to be continued in March 2012 in a report on how these treaty changes can be implemented,” said the ministry. “This is being worked on. All rumours going beyond this are unfounded and wrong.”[/quote]

The mere possibility of a smaller eurozone, though, has raised debate over its practicality, with voices from both camps arguing over the potential benefits of such a move. 

[quote]”This will unravel everything our forebears have painstakingly built up and repudiate all that they stood for in the past sixty years,” said a EU diplomat to Reuters. “This will redraw the map geopolitically and give rise to new tensions. It could truly be the end of Europe as we know it.”[/quote]

On the other hand, a senior German government official believed that pruning the euro zone would only serve 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.

“We won’t be able to speak with one voice and make the tough decisions in the euro zone as it is today. You can’t have one country, one vote,” he said, referring to rules that have made decision-making complex and slow, exacerbating the crisis.