Today, as per Reuters, we may have the winner that encapsulates all of the above mentioned dynamics:
(Reuters) - German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say.
As mentioned last night, Mer-Kozy may have made their biggest recent misstep at the recent G20 summit when they said something long the lines of, "Greece is free to leave the EU" and in doing so, they opened a box that can't be shut. Who will invest in any thing EU related, whether it be the EFSF, individual countries including Germany and France, or the financial system when the biggest supporters of keeping the EU bloc enacted have suddenly opened the door to a country leaving? Where's the consistency? Where's the trust? Imagine for a moment that Greece, the first or second most likely candidate where to leave the EU and re-issue drachma and in essence, default on all bonds. The contagion from that event would hit every financial institution in every country in the EU and beyond. Who would invest capital in any of these institutions when there's no guarantee that a 50% haircut doesn't become a 100% loss which would trigger all kinds of ramifications?
We have just gone from a bad idea (the creation of the EU) to the nightmare of ideas and it seems to be beyond academic as Wikileaks exposed last week with their cable that Germany is preparing to leave the EU.
It just got a LOT worse. EXCERPTS from the article (comments to follow below):
French President Nicolas Sarkozy gave some flavor of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe -- the euro zone moving ahead more rapidly than all 27 countries in the EU -- was the only model for the future.
The discussions among senior policymakers in Paris, Berlin and Brussels go further, raising the possibility of one or more countries leaving the euro zone, while the remaining core pushes on toward deeper economic integration, including on tax and fiscal policy.
"This will unravel everything our forebears have painstakingly built up and repudiate all that they stood for in the past sixty years," one EU diplomat told Reuters. "This is not about a two-speed Europe, we already have that. This will redraw the map geopolitically and give rise to new tensions. It could truly be the end of Europe as we know it."
"France and Germany have had intense consultations on this issue over the last months, at all levels," a senior EU official in Brussels told Reuters, speaking on condition of anonymity because of the sensitivity of the discussions.
"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.
One senior German government official said it was a case of pruning the euro zone to make it stronger.
"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.
Speaking in Berlin on Wednesday, Merkel reiterated a call for changes to be made to the EU treaty -- the laws which govern the European Union -- saying the situation was now so unpleasant that a rapid "breakthrough" was needed.
EU officials have told Reuters treaty change will be formally discussed at a summit in Brussels on December 9, with an 'intergovernmental conference', the process required to make alterations, potentially being convened in the new year, although multiple obstacles remain before such a step is taken.
"This is something that has been in the air for some time, at least in high-level talks," said one EU diplomat. "The difference now is that some countries are moving forward very quickly ... The risk of a split, of a two-speed Europe, has never been so real."
"Intellectually speaking, I can see it happening in two movements: some technical arrangements in the next weeks to strengthen the euro zone governance, and some more fundamental changes in the coming months," the senior EU official said.
I think this is the headline that will eventually be remembered as, "Game Over". The economic ramifications are incalculable, but that has never stopped the EU from making hasty, horrible decisions. Beyond the economic fall-out which will be world-wide and make sub-prime look like what it is in comparison, the loss of a home vs the loss of a continent. Can you imagine the animosity from countries that were left out in the cold to fail on their own and how many ways that could backlash. The political fall out would be unimaginable and the world strategic map would change radically. I can imagine the Russians coming to the aid of Greece in return for a naval port on the Mediterranean. China's global ambitions and the currency reserves they have to back them, would suddenly be like the biggest, most unfathomable dream come true. The Eastern European Bloc would likely be under threat from an expansionary threat from Russia's Putin who we all know wants to see the Soviet Union rise back up from the ashes after 2 decades of European and American influence making in roads in to their former satellite states. I've known since I was 20 years old that I would live to see unbelievable historic events, 9/11 sadly was one of them, but serious thought about the ramifications of what is not only being proposed, but apparently acted on, defy the collective imagination and I don't think you can call me paranoid to say that this could very well lead to the 3rd World War, once again on the European continent led by the same crew as the first two.
Whatever the market does in the next weeks and months, I truly believe this, today, was the game changer and I believe it will be reflected in the market in a way we have never seen before. If the market hates uncertainty, the EU just served up the biggest plate of uncertainty possibly in the last century or more. I can not stress enough how unbelievable this news is and how much of a detrimental effect it will have, even if the plan is suddenly halted and totally shelved, the cat is out of the bag and mistrust just hit new all time levels.
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