Germany locks up its money box

Germany’s point blank refusal to increase the size of the European Union’s safety net for bailing out less prudent Eurozone members will be causing a flap around Europe today.

It is clear Angela Merkel is coming under increasing domestic pressure not to give away Germany’s hard earned reserves and act as a piggy bank for Eurozone members that refuse to live within their means. What is really interesting is that Germany has also again rejected the idea of the creation of a joint sovereign bond, or “E-bond” for the Eurozone. As Merkel put it:

“The treaty does not in our firm view allow any euro bonds, so no uniform interest rate,”

You can be sure work is already underway in Brussels to devise a solution that sidesteps Germany’s objection and allows for the creation of an E-bond. It would be positioned the next logical step in the development of a Europe-wide currency. This is how the ‘colleagues’ work. The rules they put in place are discovered to hamper the project of ever closer union and centralising power, so they are ignored or circumvented to overcome objections from any members whose interest isn’t served by a new export of power.

Most concerned of all today will be Portugal and Spain, who will be relying on German money to shore up their faltering economies in the event of a bail out. They will have already been smarting at the interest rate Ireland is being forced to pay for its bail out, but now there will be question marks about the availability of sufficent cash to execute a rescue as the total sum borrowed always exceeds the worst case estimate of the amount required. We will soon find the prospect of those countries defaulting on their debts has just increased, with knock on impacts for international borrowing. The trade in credit default swaps will really take off now.

The next question of relevance to us in the UK is how much more money we will need to borrow to give to Eurozone members. After all, the Cameron coalition has already shown our national interests always come second to those in other countries. Hang on to your wallets!

1 Response to “Germany locks up its money box”

  1. 1 Nemesis 06/12/2010 at 6:10 pm

    I have heard from 2 sources that the Germans have already printed D-marks and have stored them in reserve. I havent been able to verify this – perhaps someone else can.

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