I am seeing reports of 7.7 on the Italian ten-year bond, over eight percent on the two-year bond, 6.5 percent on the six-month note, and so on. Here is one account.
Maybe these markets simply will shut down soon. There is so much talk about what the Germans should do, but I don’t see the viable options. With Germany’s own credit status now in doubt, eighty percent debt to gdp ratio, massive welfare state, and unfavorable demographics, are they supposed to endorse — going to endorse — ten or fifteen percent price inflation for a few years’ time, all with no guarantee of reforms in the economically weaker countries? And is that inflation then followed by a subsequent deflation? Or does it continue forever? And would Germany have to move to a regime of wage flexibility for the professions too? How politically feasible is that? I don’t see how the Germans benefit from going down this road, even if you think, as I do, that the alternatives are quite dire.
Honduras is doing much worse than Portugal, and is a much smaller country. I don’t see the United States even considering significant aid to Honduras. If you’re going to play the “who is in a formal political agreement?” card, note that the current EU agreement explicitly specifies that, fiscally speaking, countries are pretty much on their own.
The motto “no monetary union without a fiscal union” isn’t wrong, but more to the point is “no fiscal union without a common electorate.”
I don’t see anybody who has put a successful reform option on the table. I do see a lot of articles and Op-Eds trying to create a moral equivalence between Germany and the periphery, followed by proposals which ignore the question of what is a sustainable political equilibrium in Germany. Germany can’t just plop down the money, or turn on the monetary spigot, and get back to where it was.