Eurozone Trouble Ahead
Yesterday Germany failed to sell all its bonds. This is an unwelcome straw in the wind. Markets remain nervous, if a little irrational. Portugal’s bonds were oversubscribed, but at a higher yield than two weeks ago. These bonds are for one year only, then the Portuguese government will have to come back to borrow more. This is truly living from hand to mouth on borrowed money. There are rumours and hints that the ECB might start buying this stuff in, with its own version of quantitative easing.
This kind of uncertainty will continue so long as ECB/EU teams lurch from one delinquent capital to another with bail outs and strictures. This is not government nor is it policy making. It is putting out fires. The trouble is, once one fire is subdued, another sparks into life. The danger is that sooner or later they all join up. That becomes a conflagration, which cannot be controlled. This is the danger to the Euro. Without a government it must in the end collapse. To set up some kind of federal economic executive would require either a new treaty or hefty amendments. Some countries would have to put these to their electorate in referenda. In the present climate at least some will say no. This is a very tricky situation.
Back home the Coalition may find itself caught between a rock and a hard place. Not to lend to the stricken will risk conflagration. To do so will risk losing the money. Borrowed money at that.