RPT-GRAPHIC-There always was a euro zone "core"

By Jeremy Gaunt

LONDON Nov 16 (Reuters) - Back when the euro zone was being created, there were a lot of people in Brussels and within central banks who thought that Italy, Spain, Greece et al had no business being in it.

With government debt emergencies now spreading from essentially bankrupt Greece to Italy and beyond, it could be argued that they were right.

Greece is in danger of falling -- or being pushed -- out of the currency union. But there is also renewed talk about an old idea -- creating a hard core of economies with a softer periphery working to catch up.

This was the initial expectation in the 1990s. Germany was seen going forward to monetary union with France, Luxembourg, The Netherlands and -- after intensive slimming to a still-hefty debt burden -- Belgium.

Others were to join in later, but only when they had proved capable of living with a stable currency, low debt and tame inflation.

Politics and history -- Italy was a founding member of what became the European Union -- got in the way of this plan and some countries scraped in with only last-minute qualifications, particularly in fiscal discipline.

All who wanted to, as it turned out.

Some monetary hard liners, like Bundesbank member Hans Reckers, were vocally opposed.

He caused fury in Athens, for example, by suggesting that Greece was not ready to join the club.

A quick look at how bond investors saw the relationships shows that a core already existed in the mid-90s.

The difference -- spread -- between Dutch and German bond yields was negligible from at least 1995. France joined them in early 1996. Belgium and Luxembourg, already in a currency union, also skimmed along with a tiny spread from around the same time.

By contrast, today's troubled debtors were nearly off the scale in the early days, only coming in close to Germany when it became apparent that they were indeed going to be let in.

There was a clear core and a clear periphery -- and it was pretty much the same divide now so evident on Europe financial markets.