The weird story of the day: France and Germany have supposedly been chatting about the establishment of a core Europe that would only be the rich countries. Goodbye debt-happy PIIGS!As much as these countries would like to believe that they could have their own Eurozone with only strong countries, the concept is a joke for several reasons.
- 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.
- You’d slowly develop trade imbalances that countries wouldn’t be able to fix through the natural means of currency devaluation.
- You’d still have one central banks trying to manage monetary policy for multiple economies which, at times, will be moving in different speeds.
- You’d still have cultural integration problems: Are the French and German really going to be part of the same country?
Ultimately, Eurozone leaders still think their problem is the “debt” of some countries. It’s not. The problem is their broken monetary system.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.