[Premium] Daily commentary: On free money for the German government

Not a lot to say today but I do have a lot of links. The stories today are all the same, which is why I don’t have a lot to add.

One story to note is that the German government is now borrowing 2-year money at zero percent. This tells you that the Germans continue to benefit from Europe while the periphery does not. The prevailing narrative as to why this is so is because the Germans are frugal and conservative and the peripherals are not

[Premium] The Germans have already blinked

The talk about Greece being kicked out of the euro zone has clearly been overdone. Some have suggested that the Germans had reached their fill and that they would ‘stare the Greeks down’ in this high stakes game of chicken. I have maintained that European policy makers in Greece, in Germany and throughout the euro zone are steadfastly committed to the euro. Recent reports of discussions now ongoing support this.

Moreover, these reports show that Germany is indeed willing to compromise on core issues causing crisis in the euro area. These reports also hint at the form that euro zone compromises will take on the fiscal and growth pacts now being contemplated as the silver bullet to Europe’s sovereign debt crisis. I do not believe the compromises currently on discussion are going to be a definitive solution for Europe. I would sooner label them a variant of ‘extend and pretend’ than something definitive. Nevertheless, these talking points do demonstrate continual movement toward fiscal integration in the manner I indicated in November during the Italian crisis

Europe’s depressing prospects

By Michael Pettis Normally I don’t like to write about European prospects in the midst of a very rough patch in the market because in that case there isn’t much I can say that isn’t already being said. I find it more useful to wait for those recurring periods in which the markets recover and

Chart of the day: The German-Spanish 10 Year Spread is at an all time high

Spanish bond yields are spiking with no obvious reason to believe they will come down anytime soon. That puts the Spanish-German 10-year spread at an all time high

Super SGP coming – ECB: “A stronger and stricter fiscal framework is required”

The long-held view in German policy circles has been that the European sovereign debt crisis is a clear indication that the stability and growth pact (SGP) was not sufficiently robust in addressing fiscal discipline. The ECB is now addressing this with a policy paper

[Premium] On Europe’s advancing preparations for the Grexit

The evidence is becoming increasingly clear that German policy makers are prepared for Greece to exit the euro zone. Knowing this changes how one should view the likely policy responses in Europe. In the short term, this means allowing more time to meet the Maastricht hurdle and setting up a EuroTARP that banks can access for recapitalisation. Over the medium-term, we will see treaty changes for enhanced fiscal rules including a growth compact, penalties, oversight and specific mechanisms for a euro zone exit

Spiegel: Kohl-era German documents reveal euro formation was about politics

“The German government has, for the first time, released hundreds of pages of documents from 1994 to 1998 on the introduction of the euro and the inclusion of Italy in the euro zone.”

Europe edges closer to the endgame

Later this week, I plan to write a more comprehensive post on the European sovereign debt crisis to incorporate what we have learned since the French and Greek elections. Here’s a short preview of what I will have to say

Hitler and Mussolini rose to prominence as a result of pro-cyclical government economic policy

In 1921, the US, a creditor nation, was fighting boom time inflation and turned to ‘austerity’ to defeat it. Europe on the other hand was seeing a debt-laden deflationary episode after the Great War. This episode has historical lessons for today’s leaders

[Premium] Euro zone policy may turn to relax 3/60 hurdle and to EuroTARP

The mood has turned against austerity in the euro zone because it is now rightly seen as anti-growth. The question is what next. Here I will hazard a few predictions of where euro zone policy is headed including a Euro

European Policy Shifting Toward Growth Before Key Elections

ECB President Draghi’s support for a growth pact for Europe is important, perhaps under-appreciated by the market. This is not simply a tactic to deflect attention from the IMF’s call that the ECB ease monetary policy further. The ever politically adept Merkel recognizes the push toward a growth pact but will not allow Germany to be out maneuvered. While the growth pact may be on the agenda, she will aim to drive its shape. This is the way this level of European politics works

[Premium] Tracking My List of Ten Surprises for 2012

I thought now would be a good time to see how my ten surprises for 2012 are tracking as we are nearly a third of the way through the year. I posted these as my first weekly newsletter and these are events that have 1-in-3 odds of happening but which I believe have a more than 50 percent likelihood of occurring in