Interesting angle from Der Spiegel, which argues that deteriorating macro fundamentals are not behind the Irish debt blowout.
The issue, rather, is that once again that Germany is once again sending mixed signals about bailout mechanisms in Europe:
“The main reason why spreads have remained under pressure isn’t further divergence in budget fundamentals,” Luca Jellinek, head of interest-rate strategy for Credit Agricole, told Bloomberg. “Rather, it stems from fresh evidence that inter-government solidarity within the European Monetary Union remains limited and possibly fragile.”
While European officials have spent the week insisting that the EU would come to the support of Ireland should it become necessary, both Merkel and French Foreign Minister Christine Lagarde have increased pressure on Ireland in recent days. On Wednesday, Lagarde made the clearest statement yet that France supports Germany’s position on debt restructuring for crisis-ridden euro zone countries.
Merkel’s Tough Stance
“All stakeholders must participate in the gains and losses of any particular situation,” Lagarde told Bloomberg television.
Merkel, for her part, has refused to soften her stance. In Seoul on Thursday for the G-20 summit, she said “we also need creditors to be involved in the costs of restructuring. … We can’t constantly explain to our voters that taxpayers have to be on the hook for certain risks, rather than those who make a lot of money taking those risks.”
All this should sound familiar. During the peak days of the Greek crisis, German leaders dithered back and forth and let the situation get a lot worse than it needed to be.
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