Ms Merkel is the subject of a headline I have been looking forward to for some time now. The FT headline:
“Merkel defies markets on debt crisis”
About time somebody other than Krugman called the bond-vigilante bluff. Ms Merkel basically told the self appointed bond-vigilantes to take a hike.
“Politics cannot and will not simply follow the markets “
This is in response to the markets demanding the issuance of a eurobond to assure the bailout of Greece and Italy and all other comers. Otherwise, they ominously mutter – we will… we will… huff and puff and blow your house down. In effect, they are asking to be made whole on their holdings of Greek debt on the backs of all europe.
But the basic principle of capitalism is he who takes the risk bears the outcome. The investors in Greek bonds have included money managers who recklessly bought the debt even after that country’s fiscal woes were apparent. They gambled that Europe would view Greece as they expected the Fed would view Lehman.
If only David Cameron had had the courage to do ignore the wolf, he could have spared the UK its ill advised austerity program and the riots last week.
So, why only two cheers? I am saving the last for when Ms Merkel adds .. “we will consider raising short term deficits in a controlled manner in concert with long term stability measures for the paramount need to spur employment and growth”.
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