November 10th, 2011
08:11 PM GMT
London (CNN) – The spectre of a two-tiered Europe has once again muscled its way center stage, as rumblings grow around the discrepancies between the strong and the weak economies struggling to co-exist on the continent.
Suggestions the eurozone is diverging into two groups is hardly controversial: One only has to look the economic performances of its 17 countries during the last 18 months.
Clearly some economies are thriving under the common currency, while others have collapsed. Greece can’t pay its bills and is surviving on the funds of Europe’s bailout pot and the International Monetary Fund. Portugal and Ireland are, of course, in the same club.
Germany’s economy – which makes up a mighty 27% of the eurozone’s – is led by exports, has benefited from growth in emerging markets such as China, and has been under the steady guidance of Chancellor Angela Merkel. It would clearly lead any club of elite eurozone members.
But increased speculation of some sort of two tier structure not only within Europe but the euro bloc was Thursday fed by a press report – later denied – that German and French officials were discussing a European Union overhaul and potentially smaller eurozone. This, in turn, threw into sharp focus comments previously made by French President Nicolas Sarkozy.
Sarkozy, speaking in Strasbourg this week, said Europe was moving to toward a two-speed model, which he described as: “One speed that moves “towards more integration in the eurozone” and another speed “for a confederation within the European Union."
Any indication that sort of line is being taken further – suggesting the eurozone could be a smaller club - is politically explosive. While it apparently reflects economic reality, it runs hard against the intense drive, led by Germany, to hold the bloc together. And so Germany has actively dampened the speculation.
Even so, the suggestion raises interesting questions. How would one tighten membership of the eurozone? There are rules already in place to ensure financial responsibility - would they have to be changed? Can Italy - the bloc’s third largest economy – claim to be one of the elite since the eye of the eurozone crisis settled on the country’s €1.9 trillion debt pile and funding costs which this week pushed through 7%? Keep in mind Greece, Ireland and Portugal all took bailouts after their funding costs hit those levels.
Meanwhile, as the speculation and continued frantic negotiations to save the bloc continues, the region’s growth forecasts are sinking.
According to the European Commission, the recovery of the European Union economy “has stopped.” In a statement Thursday it blamed, among other things, deteriorating confidence in the region. So as the politicians squabble, the suffering on the ground looks set to continue.
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