By Dave Anderson:
From the point of view of the peripheral Western European nations, the selling point of the euro was that it would allow those nations to refinance their debts at German rates because the Germans had credibility on running a hard currency. The exchange of policy autonomy for significantly lower interest rates has not been the case since the global financial crisis began.
Bloomberg reports on Portugal:
The yield on Portuguese five-year debt reached a euro-era record amid speculation the nation may be nearing a request for financial aid. Bunds rose for a third day as stocks fell after an earthquake struck northern Japan. ...
The yield on the Portuguese five-year bond rose as much as 23 basis points to 8 percent, the most since at least 1997 when Bloomberg began collecting the data, and was at 7.99 percent as of 5 p.m. in London. The 6.4 percent securities maturing in February 2016 dropped 0.83, or 8.30 euros per 1,000-euro ($1,386) face amount, to 93.73. The yield premium for the securities over similar-maturity German debt widened to a record 548 basis points, or 5.48 percentage points.
Calculated Risk has a bit more info:
The 5 year yield is up to almost 8%, the 2 year yield is at 6.5%, up from 4.5% earlier this week.
Meanwhile, Greek Prime Minister George Papandreou and Irish Prime Minister Enda Kenny are apparently asking for better terms.
Note: The Greek ten year yield is at 12.8%. The Irish ten year yield is 9.6%...
The periphery is not getting German financing rates but they are getting German interest rate policy when what they need is mass inflation to avoid grinding real wage cuts against very sticky nominal wages.
I am a "rip the band-aid" off type of guy... Staying in the Euro and getting 15% to 20% unemployment rates with very high interest rates is a form of policitcal-economic maschismo, and not good economic policy. When an implied bargain has been broken, it is appropriate to investigate ways to get out of it, especially if that means sticking the German bondholders with signficant capital losses instead of taking several kilos of flesh out of a peripheral nation's citizens.
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