... the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower.  Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters.  It's always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don't know very much.

If I am right, who sent this message? Der Spiegel would never act by itself and without coordinating with powerful German policy makers. My sources tell me that these circles are mainly located within the German Finance Ministry and, to a lesser extent, in one or two of the larger banks. In association with Der Spiegel they have been sending tamer messages along similar lines for a while, namely that the Greek debt is not sustainable under the present policy mix (see FTAlphaville's account of that series of messages utilising Der Spiegel as the main conduit).

Having lost patience, once their signals were largely ignored, Germany's Finance Ministry's `people' must have decided to employ the big guns of yesterday's signal. They took a partial truth (that the Greek PM had looked at the potential costs of a Greek exit from the euro), amplified it by omitting to mention all the other scenaria which were considered and, hey presto, a small tempest was unleashed on Europe's leadership. All they then did was to watch the panic perform its miracle. What miracle? Concentrating the mind of Mrs Merkel, Mr Papandreou and assorted ministers on the importance of living, for once, in truth.

More precisely, the message sent by the Spiegel incendiary article was that the policy of fresh expensive loans for insolvent states, combined with savage austerity at a time of deep recession, does not and will not work. That the time for debt restructuring for the eurozone's stressed periphery has come, as has the time for a rational resolution of Europe's banking crisis. To drive their point home, the circles within Germany that saw to it that Spiegel publishes this article illustrated vividly, for Mrs Merkel's and Mr Papandreou's benefit, that there is something far, far worse than a debt restructure: the commencement of a successive elimination of countries from the eurozone that will give rise to magnificent levels of speculation in the money markets as to who comes next and when.

It's the politics, stupid!

That could make a sig line...