The split of the eurozone in north and south by markets

Dear reader, 

it was concluded by me weeks ago when the markets got more and more nervous about the lack of leadership of Merkozy when it came clear that the markets will achieve what European politicians desperately try to avoid: The split of the Eurozone in half !

Two zones with different character, different mentality , different strength but most important inner balance and stability.

As suggested before by German economist and retired businessman Hans Olaf Henkel (and myself with not such a well known name ;-)) 

Others had this idea of two zones instead of one with many tensions even potential for total collapse been published this year. 

So now markets are seeking already the safety of the core of the Eurozone and capital is being deducted from the periphery of it. The ever bigger yield spreads between "good" and "bad" states are becoming more and more extreme again after Greek PM Papandreou announced a referendum and therefore put the fear factor back into the global financial markets. Tensions were lifted before by Merkozy when markets calmed down after the "big bazooka" was announced only 1 week ago on the historic Brussels summit where the Greek problem was supposedly solved.

The zone was created under false assumptions from the very beginning as then president of Bundesbank Mr. Tietmeyer already warned 1996 (see "good old times" & "Monetary politics taken over") to "listen to economics" ONLY and many other responsible persons with some degree of responsibility then tried not to include Greece but also Italy into the new zone of single currency. The political objective to create "one Europe" vindicated over basic economic rules and so the later disaster (now!) was planted in the EU. So now this "plant" has grown into fully developed tree of crisis even brought us all to the brink of collapse. It didn't have to be that way there are ALWAYS alternatives except for those narrow minded politicians who want to their will seen into reality. So if the want the heaven to be red they declare it red and tend to punish anyone who doubts that doctrine. But some new members of Eurozone proved how it could have been in the very beginning. If i take just Slovakia who joined just recently. They had to adjust their entire economy to the RULES of the Eurozone and made pain staking reforms in order to pass the high obstacles before being allowed into "the club". So it is perfectly understandably that especially the Slovaks had some big difficulties to pass new legislation into order to beef up the EFSF in October. They argued that they had to put some hardship to their people to achieve a goal while Greece took the freedom of cheating its way into the zone and then did nothing to get their finances straightened out in order to comply at least later to the Maastricht rules. So it was possible for later candidates to apply some rules while in thee euphoria of the beginning it seems that the newly to be established zone couldn't be big enough. So basically "bigger was better" and turning a blind eye later was later possible for those who sneaked in already.  Should one be thankful that at least for the new candidates the rules were upheld stricter ? However the proces for new candidates made it all to clear how it could have gone from the very beginning. Building a core zone first by states of the former EMS (European monetary system) which operated in the narrowest bandwidth of fluctuation and formed  a "common spirit" of stability and therefore would have been  a role model for later candidates who were in need of some adaptation of their economy first. back then the German Mark and therefore the Bundesbank hd the leading role for some other countries or their currencies and whenever the Bundesbank made a move on the global money markets or raised/lowered interest rates decided on by Zentralbankrat their counterparts in the Netherlands, Austria etc followed within a matter of hours. So the dutch Guilder was pretty fixed to the D-Mark and also the Austrian Shilling (among others) . No problems back then in the good old times because same spirit ruled over many years and no rift between monetary or perhaps even fiscal policies was to takes place. (In fact i have to recheck the point of "fiscal  harmony" it is more of an assumption in the moment). However the split now occurring right through the currency zone is more or less along the "old lines" and the sooner politicians stop to live in total denial of reality the better.


What is now the case that  some people deeply rooted in the real economy by leading companies and therefore live in reality of every day business acknowledge this "construction fault" and also the tensions because of trade imbalances and the ever more rapidly needs of rescue efforts by pumping loads of money into the weaker states of the union. Such a person  grown up in real economy who saw himself already more or less in well deserved retirement is Hans Olaf Henkel among other functions once head of the BDI the German organization of industrial companies. So this is once more also a crisis of politics just like the massive budget problems of many if not all countries of the union. Politicians mostly living on dreams or visions how they call it and by putting aside facts and therefore reality as long as the resulting biting problems eat a chunk out of their behinds ;-)

to be continued....

references:

article which trigged mine:

Die Weltmärkte bauen die Euro-Zone um 

markets:
EURO GOVT-Bunds soar; Greek referendum call unsettles markets
Italy bond yields jump, CDS spreads widen
Italian borrowing yields soar above 6.0%

Mr. Henkel:
http://de.wikipedia.org/wiki/Hans-Olaf_Henkel

his views and others:
Die Vision von einem Nord- und Süd-Euro
„Nord-Euro statt Transferunion"
"Der Euro war mit schuld an der Verschuldung Griechenlands"
Mit „Nord-Euro“ und „Süd-Euro“ aus der Schuldenkrise

Griechenland muss bald wieder zum Friseur
Olaf Henkel guest author of Handelblatt.com (all articles - ger)

others:
The single currency is tested to destruction
Briton cannot stage an economic recovery in splendid isolation
Will the euro survive in its current form beyond 2012?
Two-way eurozone split led by Germany could solve 'rolling debt crisis' (video)
The Eurozone has a choice: Split up or die
Nov  19th 2011 CPB: weinig extra welvaart door Euro  (dut)
Nov 22nd 2011 Historiker Baring für Nord-Euro
Jan.  14th 2012 France downgrade widens EU's North-South schism