FINANCE/ The Eurobonds that Merkel cannot refuse
With the beginning of a major European meeting, the armed truce that seemed to have been imposed after the Greek elections seems now to have been shaken. Not that the markets would concede much: on the European yields, the euphoria over the Greek election results lasted about forty minutes, more or less one minute for each statement from Berlin and Brussels on the outcome. On the negotiation table, however, the pro-euro vote set the foundations for an equilibrium that, however unstable, allowed for a truce and a round of consultations among the European chancelleries. With results, unfortunately, that are very well explained in the declines of the beginning of this week.
After the summit of 20 and the summit of 4 finished with substantially nothing done, now the bilateral Paris-Berlin meeting and the Council of 27 await. In anticipation of yet another partition between bombastic proposals by the Europeanists and dry denials from the Germans, the next meetings start auspiciously: Moody's, after having lowered the rating of 15 of the major banks in the world, hit 28 banks in Spain as well on Monday.
Remember that those who bet on the collapse of the European Union by the hand of Greece were disappointed and now, except for changes in strategy, Berlin risks earning themselves the role of the irresponsible. With long-term yields rising across the euro area (including the Bund), the last stand on the policy of rigor is less and less sustainable and fiscal balances worsen regardless of the spread compared to Berlin: -4.7% for the Netherlands, -5.2% for France, -8.3% for the UK and -8.5% for Spain. The last, among other things, has just knocked on the door asking Brussels for 100 billion euros for its banking system.
Facing the risk of a scorching summer, French president Hollande proposed accelerating the bailout fund to support the Eurozone bonds and control the spreads. The reaction of Chancellor Merkel was dry, and somewhat cryptic: “I am not aware of any concrete plans” she said on Thursday, “but there is the possibility of purchasing bonds on secondary markets”. In other words: forget the support of newly issued debt. The problem is all here. Injecting public money into the sovereign debt market with the aim of supporting the demand has a cost: with no growth, in fact, new currency simply corresponds to new debt. Then, if the bond auctions struggle, as is happening in Madrid, a bailout fund paradoxically will become part of the problem not the solution.