A path to euro breakup: the two-tier euro

If there is an existing plan of action, it increases the range of possible action. Thus, an outright euro breakup is quite extreme and would be resisted strongly. However, the euro-skeptic Telegraph has an article claiming there's another path. This is the oft-mentioned, but not officially sanctioned two-tier euro.
Germany and France examine 'two-tier' euro
"It's an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply but Spain they can't afford to let fail or bail-out.

"And putting more pressure on the people of France and Germany to save other countries is politically unfeasible."

One option, to protect the wealthier northern European countries and to help indebted southern Europeans, would be for Germany to lead a group of countries out of the existing euro into a new single currency alongside the old.

The old euro would decline sharply against the new German and French dominated currency but both north and southern Europeans would be protected.

Northern economies would be protected from debt contagion and southern countries would be spared the horrors of being thrown out and forced to go it alone.

Angela Merkel, the German Chancellor, has already paid a political price for forcing the rescue plan on a reluctant public, losing her majority in the upper house of parliament in a recent election.
This is better for the euro in the long-run and increases its survivability, but it also puts the breakup on the table and increases volatility and weakness in the currency. What foreigner wants to be stuck holding the Club Med euros? On the flip side, German bonds become more attractive.

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