Can We Save Europe By Dividing It?

It's so crazy that it might just work.

put forth an

this weekend on how the eurozone could save itself by spinning off the higher-performing nations, allowing the currently doomed nations some space and time to grow themselves out of debt. His plan begins with an essential repudiation of the original mandate of the European Money Union, which has all of Europe essentially merging together into one economy, one currency, and one basic fiscal policy. As the experience with Greece, Ireland, and Portugal shows, it simply isn't possible to offer a full-throated half-approach. Europe would either need a full political merger (similar to the United States) or it needs to back off the idea of one currency and one currency valuation for such divergent economies. The current system sought the best of both worlds without factoring in reality. "Germany and its satellite economies must withdraw from EMU, leaving the Greco-Latin bloc with the residual euro and the institutions of monetary union. Let us call the legacy group the "Latin Union" in memory of its 19th Century forebear," Evans-Pritchard offered. This would, as he suggests, drop the euro against every other currency in the world, including the newly created Teutonic Mark, which would become the currency for the departing region. This Mark could retain the higher end value of the current euro, and become the big regional currency to compete with the USD, JPY and other majors. In its place, the renamed Latin Euro would fall, allowing the doomed nations a lower currency with which to regroup and regrow their economies. The lower currency value would provide opportunities for the troubled nations without forcing the same treatment onto nations that are doing well, such as Germany. The sticking point in this scenario might be France, who would not be eager to stick around with the Latin euro. However, they would become the dominant country in the bloc. As Evans-Pritchard puts it, "France might instead find a new role as leader of a Latin Union with 220m people and over 60pc of the eurozone's GDP, with economic sway over North Africa. The ECB headquarters could transfer to Marseilles, that great millenial hub of civilization, to be renamed the Mediterranean Central Bank. The currency bloc would quickly become a force in Europe."

This plan might save the Eurozone banks which are getting killed. This debt crisis might be the Lehman event for Europe.

This plan would be terribly bearish for the Euro. If anything like this was put on the table, traders would want to short the FXE or EUR/USD.