Report: Germany wants smaller EU Monetary Union

The investment bank Morgan Stanley said today Germany, Europe’s largest economy, is considering exiting the European Monetary Union, as the country believes some European nations pose a significant risk to the country.

Germany is reportedly proposing a smaller bloc of European nations that are more economically sound to unite in a new and smaller monetary union.

Specifically, with the Greek debt bailout looming, Germany believes it is setting a bad precedent for other European members that are also heavily indebted and not well capitalized to seek their own bailouts.

 In turn, the bailouts add downward pressure on the euro hence the devaluation of the currency and can even see an increase in inflation over time.

On April 11, the EU offered EUR 45-billion ($61-billion) to Greece in a rescue plan to ensure the country doesn’t default on loans. Additionally, as speculators made massive bets favoring default, that added downward pressure on the euro hence the concerns for other nations like Germany.

EU members are technically required to maintain capital adequacy levels part of the Stability and Growth Pact principles, what the EU now needs is a plan to increase supervision and ensure debt levels are truly not hidden from the use of complex derivative contracts and that the guidelines set forth are being adhered to.

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Hercules holds a B.Comm Finance from Ryerson University in Toronto, Canada. He is a Chartered Financial Analyst (CFA) level 3 candidate. He was previously a contributor at FiLife, a finance website owned by Dow Jones and IAC. Write to [email protected]
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