No sooner has the financial world breathed a collective sigh of relief over the results of the Greek Elections, than the dam appeared to spring another leak. This time in the form of surging Spanish bond yields.
As reported by the WSJ.Com yields on the Spanish Ten Year Treasury “surged to the highest on record [euro era] on Monday.” At 7.17%, “fears are mounting that Spain might need a full-blown sovereign bailout, in addition to the ($126 billion) loan for its banks. Greece, Portugal and Ireland were forced to seek bailouts when their government bond yield hit the 7% level.”
As the crisis endures, the political pressure on Germany to provide a back stop grows stronger and stronger. But as James Pethokoukis, of the American Enterprise Institute, recently noted in “What if there is no solution to the EuroZone Crisis,” what seems straightforward for pundits might not be so easy for politicians.
Pethokoukis’ blog post cites the work of Financial Times reporter Gideon Rachman, which in turn provides the money quote in terms of the politics of a Euro zone bailout.
Consider just one of the proposals on the shopping list: a Europe-wide bank deposit insurance scheme. As a senior Dutch politician who shares the German view, puts it: “We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67.” From the Dutch and German point of view, it is unfair for their citizens to underwrite the banks of countries using their own money to pay social benefits that are more generous than those on offer in Germany or the Netherlands.
Policy makers and money printers can try as they may but investors should never forget a lesson learned as early as pre-school (which seems to have been lost on the pundit class): all the kings horses and all the king’s men couldn’t put Humpty together again.
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