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The Germans (and their Dutch, Finnish and Austria buddies) prevented the ECB from intervening in the Italian bond markets on Thursday. Therefore there was a panic of post-Lehman-Brothers proportions on Thursday and Friday Who Could Have Predicted? And then it took until late Sunday to extract from Germany a grudging agreement to support the Italian and Spanish bond markets.

But of course the markets don't think there is an actual commitment to continue to do this, so the equity markets everywhere are diving and there's a flight to safety in US Treasury bills, German Bunds, and Swiss Francs.

Germany is a really existing country, and Merkel, Wiedmann, Ackermann, Stark, Issing and Sinn, to name a few, are really existing villains. We're aware people like the SPD's Sigmar Gabriel have different opinions

Sigmar Gabriel (SPD Chairman) calls for eurobonds

The FT today also reported the following: "Sigmar Gabriel, SPD chairman, on Tuesday promised his party's support once again, and argued that the German government should go further, and allow eurozone bonds to be introduced, ensuring easier borrowing for the most debt-strapped eurozone member states." Of course, this statement underplays the importance of eurobonds. The point is not to make borrowing easier for peripheral states. The point is to rationalise debt management at the eurozone's level and to arrest the negative dynamic (see here for a graphical representation of the latter).



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Aug 12th, 2011 at 04:42:24 PM EST
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