by Jerome a Paris
Tue May 4th, 2010 at 06:50:48 AM EST
Germany's reluctance to step in to decisively help stabilize Greece's debt situation means that the bailout package put in place this week-end had to be 3 times larger than it could have been a few weeks ago, and that it is still seen as not sufficient by markets, which scent blood and are are looking at Portugal, Spain and maybe others. It has also allowed Germany's generally laudable thrift to turn into malicious pigheadedness, and to be played against that country (when the English-speaking world says
they certainly think about Germany too, and are all too happy to use anything that turns its virtues into catastrophes...)
At this point, the markets are going to bet all the way against individual European countries until either a default happens - which will be used politically to say the euro is a failure - or they get a full commitment by Germany and other solid Europeans to back the debts of their neighbors - which will be used politically to say the euro is a failure... unless that commitment takes the form of a European grand bargain towards greater integration rather than an unwilling, protracted capitulation "to save the German banks."
I've learnt not to be optimistic about European integration in the past 10 years, and am not looking forward to the utter humiliation of Germany by the markets, but they still have a choice, today.