This has always been assumed, but now it’s getting explicit.
The deal is: If the rest of Europe seriously agrees to give up fiscal sovereignty, Germany is prepared to use its might to backstop the whole darn project.
From DJ FX Trader
I wrote about the details this morning. The Germans are getting increasingly vocal about making this trade: Money for control.
The problem is, as Gideon Rachman points out, it’s a dicey proposition for the Germans to make any noises about supporting Europe if Francois Hollande is explicitly trying to offer French pensioners cushier perks.
Regardless, this recognition that Europe is going in this direction is why some people are wondering whether today’s rise in German yields is a recognition that bunds are the new Eurobonds and do not deserve the pure risk-free status that they’ve always had.
On that note: I leave for Greece in a few hours. I’ll be curious to see how many Greeks are willing to make this trade in Europe.