Germany Draws Line in the Sand on Eurozone Bailouts, Insists Bondholders Take Pain

The contradictions of the Eurobailout mechanism were bound to be resolved at some point, smoke and mirror and insufficient firepower relative to the magnitude of the problem will only take you so far. The eurozone rescue operation, although it looked like it was aimed at so called Club Med, aka PIGS sovereigns (Portugal, Ireland, Greece, and Spain) was at least as much about preventing the banks that are exposed to their debt from taking too much pain, and those banks are mainly French and German.

The current vogue, austerity measures, sounds straightforward until the ugly reality kicks in, that all it does is put countries into a deflationary spiral, making debt loads ever worse. As Satyajit Das pointed out a month ago:

The “cure” may be worse than the disease. After implementing austerity measures, Ireland’s nominal gross domestic product (”GDP”) has fallen by nearly 20%. The budget deficit as a percentage of GDP has doubled to 14% from 7% Government debt as a percentage of GDP has increased to 64% from 44% at the start of the crisis. It is forecast to go to over 100% having been around 25% during the boom years. The cost of bailing out Ireland’s banking system has risen and may reach 20-30% of its GDP. Ireland’s credit rating has fallen.

In late September 2010, Ireland announced that in the second quarter the economy contracted by 1.2%, against expectations for 0.4% growth raising renewed concerns about European sovereign risk. Similar scenarios are playing out in Spain and Portugal.

The trigger for action by Germany is that the rescue mechanism put in place last May was temporary and expires in 2013, and any ongoing arrangement requires changes in EU treaties. And Germany, as the strongest nation in the eurozone, insists on exerting considerable influence on the design of its successor. While there was not immediate pressure to develop a permanent mechanism at this juncture, Germany appears to have caught its eurozone partners off guard, to its advantage.

Ambrose Evans-Pritchard of the Telegraph is not terribly popular among European readers of this blog, but his analysis of the implications of the German proposal (of which key elements have been agreed, details to be hashed out over the next several months) is insightful. He points out that the austerity measures are likely to backfire, that as currently structured, they demand too much of local populations and not enough in the way of corresponding adjustments (meaning writeoffs or debt restructuring) by the banks. While the Merkel initiative addresses that imbalance by insisting that bondholders, meaning banks, take losses if things get rocky, there is never a good time to implement a change, since investors will reprice assets based on the weaker guarantees going forward. The issue is that spreads on Ireland and Greek debt have already widened in the last month; this move will push them out further, making any efforts to access the markets more costly. And there is plenty of debt issuance planned.

From the Telegraph (hat tip Richard Smith):

Bondholders will discover burden-sharing. Debt relief will be enforced, either by interest holidays or haircuts on the value of the bonds. Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk…

“We must keep in mind the feelings of our people, who have a justified desire to see that private investors are also on the hook, and not just taxpayers,” said German Chancellor Angela Merkel.

Or in the words of Bundesbank chief Axel Weber: “Next time there is a problem, (bondholders) should be part of the solution rather than part of the problem. So far the only ones who have paid for the solution are the taxpayers.”

These were the terms imposed by Germany at Friday’s EU summit as the Quid Pro Quo for the creation of a permanent rescue fund in 2013….

Mrs Merkel needs a treaty change to prevent the German constitutional court from blocking the bail-out fund as a breach of the EU law, and a treaty change is what she will get….

One might argue that bondholders should have been punished for their errors long ago. The stench of moral hazard has been sickening, on both sides of the Atlantic. An orderly bankruptcy along lines routinely engineered by the International Monetary Fund is exactly what Greece needs. It makes no sense to push Greece further into a debt compound spiral by raising public debt from 115pc of GDP at the outset of the “rescue” to 150pc at the end of the ordeal.

If you strip out the humbug, the Greek package allows banks and funds to shift roughly €150bn of liabilities onto EU governments, or the European Central Bank, or the IMF. Greek citizens are being subjected to the full pain of austerity under false pretences, without being offered the cure of debt relief.

It is in reality a bail-out for investors. There is a touch of cruelty in this. Needless to say, the Greek Left has noticed. A socialist dissident from the “anti-Memorandum” bloc (ie anti EU-IMF) is likely to win the Athens region in coming elections.

Note too that the ruling socialists have fallen to 25pc in the Portuguese polls, while the Communists and hard-left Bloco are together up to 18pc. Ain’t seen nothing, you might say.

Yet opening the door to bondholder haircuts at this delicate juncture — with spreads reaching fresh records in Ireland last week, and Portugal struggling to pass a budget – is to toss a hand-grenade into the eurozone periphery….

Spain’s premier Jose-Luis Zapatero knew he had been mugged. “We need to listen carefully to what the head of the ECB says about the rescue mechanism. Great care is called for because this message is risky,” he said.

Eurozone sovereign states must issue €915bn in new bonds next year, according the UBS, either to roll over debt or to cover very big deficits – though it is hard to outdo Ireland’s deficit of 32pc of GDP in 2009. Yet investors have just been told in blunt terms to charge a hefty risk premium on any peripheral debt that expires after 2013, with great confusion over what happens even before that date. Can any investor be sure what the terms will be if Ireland or Portugal needs to access the EU’s bail-out fund next week, or next month, or next year? Are haircuts already de rigueur?

A study by Giada Giani at Citigroup entitled “Bondholders Moving Back Home” said data from the second quarter reveals a sharp drop in foreign ownership of debt from Greece (-14pc), Portugal (-12pc), Spain (-8pc), and Ireland (-5pc).

Local banks have stepped into the breach, borrowing cheaply from the ECB to buy their own state debt at higher yields in a `carry trade’ that concentrates risk. These four countries account for the lion’s share of the €448bn in ECB funding for banks (Spain €98bn, Greece €94bn). Frankfurt is propping up this unstable edifice. Mr Trichet may well fret.

A strong case can be made that Spain has decoupled from other PIGS in pain, though the deficit will still be 6pc next year, and the economy is at serious risk of a double-dip recession as wage cuts and higher taxes bite in earnest. But none are safe yet.

An ominous pattern has emerged across much of the eurozone periphery: tax revenue keeps falling short of what was hoped. Austerity measures are eating deeper into the economy than expected, forcing further fiscal cuts. It goes too far to call this a self-feeding spiral, but such policies test political patience to snapping point.

There is little that these nations can in the short-run as EMU members. They cannot offset fiscal tightening with full monetary stimulus or a weaker exchange rate – as Britain can. All they do can is soldier on, sell family silver to the Chinese and Gulf Arabs, beg the ECB to join the currency war to bring down the euro, and pray that the fragile global recover does not sputter out.

Chancellor Merkel is ultimately correct. A mechanism for sovereign defaults is entirely healthy. Had it been in place long ago, EMU would have been stronger. The proper timing for this was at the Maastricht Treaty, or Amsterdam, or at the latest Nice, but in those days the EU elites were still arrogantly dismissive about the implications of a currency union. To wait until now borders on careless.

Yves here. As noted by Evans-Pritchard, the ECB is effectively circumventing the bailout limits, acting as a back door funding mechanism by lending to local banks that in turn buy home country bonds. But the ECB is very serious about its inflation target, and this concern may come to constrain this relief valve.

Print Friendly, PDF & Email


  1. Ted K

    I’m certainly not known for my pro-female views online in the blogs (or probably in “real life” either). But I have to say Angela Merkel is the only leader (if you don’t count England, which I guess you can’t since they use their own currency) over there who DOESN’T look like she has her head up her ass. I mean in the recent decision making process, post credit crisis.

  2. Hubert

    “But the ECB is very serious about its inflation target, and this concern may come to constrain this relief valve” …
    No it is all just show. The Bundesbank might have believed its won BS, but
    Trichet, Weber, Draghi – you name them: they all are all purely political creatures. “Saving the Euro(/Zone)” will always be more important than an inflation line in the sand. Everything is an ongoing negotiation – the French understand that perfectly. In May at Brussels the most important Treaties were broken and Merkel ridiculously tried to sell it as a victory at home. So they will slip something in for the German Supreme Court and the German public – and when push comes to shove it written treaties again will not matter.
    Another reason that “Rebus sic stantibus” will prevail again over “Pacta sunt servanda”: Just look at the horrible poll numbers of the current coalition (while enjoying economic recovery and low unemployment). Merkel will not be Chancellor in 2013 – she might even be forced to fold after losing some state elections in 2011 by her own desperate coalition.
    The end-game, as far as the (current) german political timetable is concerned, will not come before elections 2016 with an Anti-Brussels and/or Anti-Islam party looking to win 15 % of the vote. But things will be shockingly derailed by then anyway.

  3. renting_well

    ‘Ambrose Evans-Pritchard of the Telegraph is not terribly popular among European readers of this blog’
    Well, I’m sure with all the problems in Greece, Portugal, etc., his reporting about how Germans are scrutinizing and rejecting Euro notes from those countries must have been confirmed by now – right? The European readers often have a problem with the accuracy of his reporting – after all, the euro has been dying for years now according to Evans-Pritchard.

    Or take this cleverly written statement –
    ‘Investors will pay the price for failing to grasp the mechanical and obvious point that currency unions do not eliminate risk: they switch it from exchange risk to default risk’
    Um, no – currency union eliminates exchange risk (until the currency union breaks down, of course), and default risk remains pretty much unchanged. The U.S. dollar and California, Illinois, New Jersey, and such come to mind as a somewhat analogous example of this basic mechanism for non-Tory readers.

    But at least even Evans-Pritchard is starting to grasp that whatever happens to Ireland, Greece, or Portugal, they are part of the eurozone periphery, which is at least an acknowledgment that whatever happens to Ireland is not really a concern of the ECB – though he still can’t quite bring himself to point out just how deep British involvement in the just coincidentally named Anglo Irish Bank may be, while only talking about the euro –

    Evans-Pritchard is useful to read – it is just that he has an interesting filter when it comes to his facts.

  4. attempter

    Where it comes to Foreclosuregate most of us agree that words like fraud and crime should appear the most often in any word cloud derived from an honest, intelligent discussion. Of course the likes of the NYT don’t see it that way.

    But that’s equally true of deficit terrorism and globalization. Yet where it comes to international debt and subsequent “austerity” assaults, commenters are most likely to regard governments and banksters as acting in good faith and to take their fraudulent depictions of what’s happening and what they’re trying to do at face value.

    Thus we get the basic assumptions: that all countries must constantly borrow in order to function; that deficits automatically matter; that a country’s credit rating and borrowing spread are the most important metrics of the “success” of its policy; that it must undergo “austerity” for the sake of the foregoing; that governments do this for the good of “the country”; that austerity is meant to accomplish what they claim it will accomplish.

    But these are all false. The corresponding truths are that the healthiest economies and communities are regional and local; that trade among them functions most effectively where organized by these communities, never by elites; that it’s only elites who organize more expansive networks of trade, and they do so only for their own enrichment and empowerment, never because economies “need” such trade; that the trade in debt is an even more pointless and extractionary elitist endeavor; that therefore all globalization and financialization policy has no goal at all other than elite empowerment and enrichment; from there, it’s logical that the goal becomes nothing but the the empowerment and enrichment of the banks themselves; that the only purpose of “austerity” is for the bailed-out banks to find new avenues of robbery as they liquidate the countries completely; that “austerity” is not a temporary measue and is not intended to be, but is a one-off terminal robbery, intended to leave us as indentured, impoverished slaves; so that every step of the process has been crime, and every word and action in furtherance of it has been fraud.

    If the people were willing to take back their freedom and human dignity, they’d take back the land and control of production at every level, from the houses and yards on their streets to their international profile. At every level it’s only parasitic and criminal elites telling them, “We own you, and you’re allowed to exist only according to the credit rating we bestow upon you.”

    At each level, from individual mortgage debts to international debt, it’s only elite fraud which has swindled real people into this odious debt. And at each level, from the fraudulent foreclosure to the fraudulent gutting of social spending and privatization of public assets based on the fraudulent call for “austerity”, it’s now those same criminals who are seeking our final liquidation.

    1. Cliff

      I have often read your comments and wanted to thank you for consistently hitting the nail on the head in your explanations. They equally make sometimes hard to understand articles clearer for me.

      I added your blog to my feed too.

      Keep up the good work!

  5. Swedish Lex

    Strangely enough there have been more street protests in France than in the Club Meds thus far. It may be that when Governments’ budget cuts kick in hard in 2011 – with not respite in sight for 2012, that a real bottom-up political momentum will form.
    I had anticipated a stronger political response in the Club Meds at this point and that such a momentum would increasingly have been driving politics.

    1. Diego Méndez

      I have always said much of the problem was not based on numbers, but on prejudices against, and stigmatization of, stereotypical Southern European culture, deemed as inferior or uncapable of more typically Teutonic-like behaviours.

      The fact that Western-style laws, democracy and even stoicism were all born in Southern Europe remains forgotten, hidden by images of dirty moustaches eating spaghetti and Zorba the Greek.

      Nothing new under the sun. It’s been happening for centuries. When civil war broke out in Spain in 1936 (fascists vs. democrats and communists), the English press sought its origins in the influence Muslims had left on Spanish culture.

      Just 3 years passed, and the whole of Europe was on a similar war: fascists vs. democrats and communists. It seems there was nothing special in Spanish culture vs. the European culture as a whole.

      By the way, I did anticipate the French would get at the streets more easily than “unruly” Southern Europeans:

      “If anything, the Greeks are behaving more responsibly (more Teutonic-like) than France seems capable to me.”

    2. Richard Kline

      So Swedish Lex, I’m of the opinion that the so far lesser public agitation in countries most troubled by debt raiders has to do with the fact that they face real crises which _no one_ has a good sense of how to handle. No one likes cuts or threats of cuts, but the wolf is at the jagged hole in the walls where the doors used to be in these places. Just saying “Non” doesn’t serve. It’s in places were it’s bad but not an abyssal moment—France, UK, Belgium [your choice here]—that we’re seeing the dust really kicked up. That’s hard to do when you’re flat on your back with the wind knocked out. When they get their wind back down south, then yes, we may have a fracas or two.

  6. renting_well

    ‘I had anticipated a stronger political response in the Club Meds at this point’
    Except which Club Med?

    Greece was fraud, pretty much – a fact that the Greeks know as well as anyone.

    Spain was in large part a truly classic real estate bubble (with a convincing demographic story to boot – retiring northerners coming south) – and yet, Spain has still made major, and obvious, strides since the last time 20% unemployment was a part of the political landscape. And even AEP concedes that Spain doesn’t seem to belong to the ‘minor’ problem countries – and since Spain’s economy alone dwarfs Greece, Ireland, and Portugal, this is relevant.

    Portugal? Call it bad luck as much as anything else – something not easy to protest against.

    Italy is still a billionaire’s personal media/poolitical playground – as long as he stays in power (a truly incredible run he has had, too), the Italians are not likely to grow unduly unruly.

    One tends to forget just how much richer Greece, Spain, and Portugal have grown in a fairly short time – it will still be quite a fall before any of those countries even begins to approach their former levels from just a couple of decades ago.

    One also tends to forget that all three had military dictatorships four decades ago – it isn’t as if people are looking for a strong government to solve their problems – whether happy with them or not, the governments they have now are actually something which is more or less ‘theirs’ – when given a choice between fascists and secret police and poor economic circumstances, or bankers and stupid politicians and poor economic circumstances, they aren’t exactly clamoring for a return to the bad old days. When demonstrating wasn’t allowed anyways.

    1. DownSouth

      And now comes renting_well, master sophist, applying all his powers of cleverness and deftness in the defense of the international criminal banking cartel.

      As attempter so astutely observed: “At each level, from individual mortgage debts to international debt, it’s only elite fraud which has swindled real people into this odious debt.”

      And at each level, from the individual mortgage debts to international debt, it’s the same arguments used to defend the swindle. So “deadbeat homeowner” in renting_well-speak gets transformed into “deadbeat country.” “Greece was a fraud,” we’re told. But a fraud perpetrated by whom, and against whom? Oh, but I digress. Slavery, injustice, inequality of wealth, war, these are accepted as ordained by the “natural law” which the old Catholic God, and the new market God, devised for man’s sinful state.

      And speaking of Gods, the cardinal virtue that stands head and shoulders above all the other virtues, according to the all seeing market God, is the virtue of progress, which has been interpreted as perpetual growth. Look “how much richer Greece, Spain, and Portugal have grown in a fairly short time,” renting_well boasts. Mexico too has grown much richer as of late. But inequality has advanced faster than growth. It’s the perennial Achilles heel of the “wealth of nations” tautology. The deplorable condition of workers in the 19th century is testament of this. They grew poorer, much poorer, as the nation grew richer. The worker soon discovered that increased efficiency alone would not establish his prosperity, as long as greater economic and political power is used against him in determining state polices detrimental to his interests.

      But then anyone who would challenge this unjust order must be a fascist, right? “When given a choice between fascists and secret police and poor economic circumstances, or bankers and stupid politicians and poor economic circumstances, they aren’t exactly clamoring for a return to the bad old days,” renting_well asserts. Reinhold Nieburh knew all about guys like renting_well. “So nations crucify their moral rebels with their criminals upon the same Golgotha,” Reinhold Niebuhr bemoaned, “not being able to distinguish between the moral idealism which surpasses, and the anti-social conduct which falls below that moral mediocrity, on the level of which every society unifies its life.”

      1. Skippy

        Reverse order ergot influenced economic witch hunt methinks…ha…ha.

        Skippy…some people eating bad ideological bread…ya think?

  7. charles

    The Spanish El Pais had a op-ed thursday prior to the Brussels meeting, titled: “Are they leading us to the abyss ?”

    A few European insights from N.Roubini interviewed yesterday
    by the same newspaper: He considers both the German and the ECB’s policies to be unadapted, to say the least.’The
    obstinacy of the ECB to see the phantoms of inflation
    is a disaster for Europe, especially for the peripheral countries. The euro reached the clouds because of the refusal of the ECB to go through the steps of sovereign bonds’purchasing, as the FED is doing (..). Were this line to be maintained, if the euro reached 1.60 to the dollar, will have disappeared any possibility of economic recovery and we would see other countries than Greece ask for a bail-out..At the pace we are going, the next financial crisis will be even worse.”. For what it’s worth:

  8. PJM

    Evans-Pritchard who?

    Come on Yves, weak up. That guy mixes wishfull thinking with hate to PIGS, except is beloved Ireland, who he failed a lot to prognise irish problems. And you know why? Because this gentleman has irish ancestors and believes, like old vitorians, that onlye british are good.

    Come on, Yves, one these days you will learn that this gentleman isnt a opinion maker, is a opinion hater spreader. lolololololol

    Best regards

    1. Yves Smith Post author


      Evans-Pritchard called the Irish deflation well before the rest of the Western media did. He also called the 2008 commodities bubble correctly.

      1. PJM

        Bu he failed to understand the irish financial system who was broke. In sted he was trying to see others problems and didnt see at home.

        Worst, dear Yves. He blamed austerity measures before the UK general election, later he welcomed the new policy. Allwyas subservet to Westminster.

        And today he allways sees the end of the €uro and blames Germany because of that when the problem inst Germany, its our cowntries that doenst have productivity to our level of consummation.

        Ok! Maybe mr. Ambrose has affraid of Germany. Who knows? Everyone has left some ghosts in his clouset. :))

        Best regards.

  9. frances snoot

    “Although there is enough high-quality collateral around to oil the wheels of the European repurchase market, the situation could change once Basel III and other regulatory proposals bed down. The problem is that the finer points will take months, if not years, to hammer out. This makes it difficult – although not impossible – for the European repo industry to plan for the future.

    The two main pieces of legislation focusing the industry’s minds are the European Market Infrastructure Legislation and Basel III, both of which could result in a shortage of collateral.

    The infrastructure regulation not only mandates the central clearing of as many over-the-counter instruments as possible but also imposes a tighter collateral and risk management regime. Basel III, on the other hand, aims to enforce liquidity requirements to ensure banks have enough liquid or cash-like assets on their balance sheet.”

    One can’t divorce the ECB bond purchases from the repo markets of afflicted countries: there will be liquidity restraints and systemic risk involved in Weber’s rash proposals.

    Indeed, Greek problematic began in the repo market last summer and was (in the opinion of this reader) a manufactured crisis to benefit German and French banks.

    Merkel is no better than the worst of the banking puppets termed leaders. She encouraged a deprecating attitude toward Greece at the indictment of the sovereign liquid market last summer. Merkel indicated that multiculturalism has failed in Germany.

  10. nowhereman

    I believe that Ireland, Greece and Portugal, as well as the former Eastern Bloc members of the EMU should all go ICELAND on the EU.
    Fuck-em and the horse that brought them. The one thing that gets me boiling is the given that the people are there to be screwed over by the politicians and their bank masters.
    What’s the worst that could happen? It certainly can’t be worse than what the IMF would do.
    Screw them, create your own currency, and tell them all, “you want to do business with me, it will be on my terms, not yours”. I may be niaive but I think it’s the only way out. Take care of your own first and the rest will follow.

    1. frances snoot

      “The International Monetary Fund won greater power to oversee G20 commitments. It was tasked with compiling periodic reports that will investigate how a country’s economic policies can damage trading partners.
      IMF chief Dominique Strauss-Kahn said the G20 ministers had, in parallel, struck a “very historic” deal to revamp the Washington-based financial watchdog to give China and other emerging powers a greater say.
      Under the accord, which has been years in the making, Europe agreed to cede two seats on the IMF board to accommodate developing nations. Brazil, Russia, India and China will all in future rank among the top 10 IMF shareholders.
      The G20 also agreed to tighten regulation of banks and big finance firms blamed for triggering the global economic crisis, raising the amount of top-quality capital that banks must hold in reserve for difficult times.
      US Treasury Secretary Timothy Geithner came to South Korea with a plan for nations running big current-account surpluses to change their exchange-rate policies, and deficit nations to take their own action to rebalance growth.”

        1. frances snoot

          “On top of that, some binding multilateral mechanism is needed to coordinate the exchange rates among the major currencies, especially in bad times. The G20 is a potential venue for such a mechanism. However, the current floating system is inadequate for this mechanism to function; it gives a “legitimate” reason for the US to dump its domestic problems to the rest of the world by devaluing the dollar.”

          Yuan enters sdr/basket: nation/states become superfluous. Regional multilateral governance based through data/statistical applications and autonomous decision operating through global governing agency is coming. We are being led there by the nose by our G20/IMF governing board members: aka Treasury departments.

          Volcker’s Rule is being managed by the BIS Basel Committee Basel iii regs: securitization consistent with domestic bank liquidity is being dismantled. Domestic currency will not trade crossborder: the role of the sdr is being expanded.

          1. Paul Repstock

            I’m afraid you are correct Frances. I think that may have been the real point of manufacturing this whole mess. If you frighten people enough they will agree to anything, even giving up their freedom of choice.

        2. Paul Repstock

          Wouldn’t that be a wonderful way of imposing “Movement Restrictions” without actually putting them into law.

          After all, if the relative values of currencies was set by the Global Government, anyone who did not have incomes in more than one country probably could not afford to travel???

  11. dcb

    I want to vomit when I read some of this stuff. it will cause a deflationary spiral and make things worse….
    so of course the answer must be to print more money, reflate the bubble, make sure the entire business cycle is eliminated, and so on.

    Nothing about the reason we face the potential of real deflation is we kept doing this over and over.

    Are we going to have some form of functioning capitalism where the banks must actually have some consequences to their malinvestment, so capitalism actually runs the way it should.

    the fed and all these central banks with inflation targeting (which by the way is a fancy way of saying we will lower interest rates to ensure we bail out the banks once again) is so F’d up. Is there anyone who really buys this crap anymore except the bankers because it makes them money and gives them a better bonus.

    when you really understand that the whole thing is one big scam, and we just keep pretending. Honestly it is a 1984 nightmare. We just pretend,

    have to actually run

  12. F. Beard

    When will sovereign countries (sorry EU members, that doesn’t include you apparently) learn they can issue their own money without borrowing it from central banks or private investors?

    1. frances snoot

      Frankly, the idea is to maintain the ongoing trade/export monopoly and dupe the domestic populations into believing that gold will buy food or access to clean water. Exchange rate control cedes power to those that maintain the current monopoly: assets contained through these controls will retain potency as derivatives of the sdr/index.

  13. Grace Styles

    Think that Ted K is right, Angela Merkel has at least tried to maintain some of control over things, indeed thought she was quite impressive with her pragmatism in the immediate aftermath of the credit-crunch materialising. But, if we needed any more evidence about the political nature of monetary union , need we have to look further than her having to wait all this to impose sovereign default? Too late and unlikely to resolve long term. Merkel is under a lot pressure back home – ordinary Germans have had enough of bailing out its profligate neighbours, annoyed the ‘PIIGS’ can’t swallow the same kind of strong medicine they had to post unification . Can the union withstand all this stress and dislocation? Increasingly thinking not…even momentum among ordinary eurozone folk is moving towards extrication and this ‘fix’ will not have much positive impact on that score definitely. And Now we have an appreciation of the euro – its needed like a hole in the head at the mo. As economist here says, it could mean yet more very big trouble ahead for monetary union.

  14. gallam

    “We must keep in mind the feelings of our people, who have a justified desire to see that private investors are also on the hook, and not just taxpayers,” said German Chancellor Angela Merkel.

    This one statement encapsulates everything that is wrong with economic policy currently. This comes from the supposedly hawkish end of the European political spectrum, representing the most hawkish voters. Perhaps it should read:

    “We must keep in mind the feelings of our people, who have a justified desire to see that private investors are ENTIRELY on the hook. AND THAT IS ALL I HAVE TO SAY ON THE SUBJECT.”

  15. frances snoot

    Why would Merkel have anything to say about Weber’s hammer?

    “At this point it must be noted that the Franco-German plan, to amend the Lisbon Treaty and introduce penalties for countries with excessive deficits and debts, is a difficult compromise between those two leading Eurozone countries.”

    This is not about democracy!

    “Germany wants to change the EU’s Lisbon treaty, which only came into force last December after eight years of negotiation, to make sure it includes a permanent system for handling financial crises, such as another Greek-style debt collapse.”

    Odd that Ambrose agrees.

    “To wait until now borders on careless.”

  16. Richard Lyon

    The peripheral countries on which Germany is attempting to impose austerity represent 40% of the market for Germany’s export driven economy. In their effort to bail out their banks they appear to be shooting their exporters in the foot by stifling demand.

  17. charles

    Richard Lyon has the perfectly right comment. The blow-up will take place before Germany, already near-desperate to diversify its export ‘partners’-watch the efforts in Poland and Russia-absolutely unable to activate a still-sagging
    domestic demand, despite the thrills of all economists,leading
    the ‘Fachidioten”s pack, pardon my French, Rainer Bruederle, their Minister of Economy, Geithner-like sounding when he declared recently:’we have accomplished a text-book ecovery’…Tolle Sachen

    1. Paul Repstock

      LOL, Look at it as a “Consolidation Phase”..They have had years of export advantage to build up their ‘war chest’. Now with this latest investor liability thing they make sure that they are the only possible recipient for the bonds. In 3 years the Germans and French will own nearly all of Europe.

Comments are closed.