Utopian Germans risk full-blown EMU depression

Tuesday, November 15, 2011
By Paul Martin

The relief rally from technocrat takeovers in Italy and Greece has already wilted, once again reviving the elemental question of whether Germany will go beyond rhetoric and commit its full strategic power to halt Europe’s debt crisis.

By Ambrose Evans-Pritchard

Yields on Italy’s 10-year bonds jumped back up to 6.7pc after Bundesbank chief Jens Weidmann dashed hopes for muscular intervention by the European Central Bank to stabilise bond markets and buy time for the new government of Mario Monti.

“Monetary policy cannot and must not solve solvency problems of states and banks,” he told a Frankfurt forum, calling for a halt to incessant pressure from the rest of the world for the ECB to violate its own legal mandate with debt monetisation.

Hours later, Germany’s Chancellor Angela Merkel called for a “breakthrough to a new Europe, and political union” but ruled out Eurobonds, debt-pooling or any form of fiscal transfers to weaker EMU states in a speech to the Christian Democrat (CDU) party conference in Leipzig.

The body language from Germany has washed away any alleged benefits from installing EU technocrats in power in Rome and Athens. Spanish yields have once again crossed the danger line of 6pc.
Credit default swaps measuring bond risk have reached a record highs of 203 basis points for France and 322 for Belgium, with major knock-on effects in Eastern Europe and the Baltics.

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