Today in the bond market:
German and French government bonds rose, pushing yields to record low levels, and securities of so- called peripheral nations such as Spain fell on concern Europe lacks a united response to its debt crisis. [...] The spread between the bund and 10-year Treasuries narrowed five basis points to 55 basis points, indicating investors may perceive assets outside Europe as safer.
It’s true that there’s a growing perception of unsafety in Europe, but you already knew that. The interesting thing here is that German and French bond yields are falling to record lows. That prima facie looks like falling inflation expectations in Europe. Which in turn drives home the point that though Greece definitely has fiscal problems, the main issue in Europe isn’t in government budgets but in the lack of growth or prospects for growth. If your economy doesn’t grow, your budget will necessarily not add up. The ECB desperately needs to step up with more forceful intervention, and if European governments feel like taking politically difficult measures it would be better to focus on pro-growth structural reforms than on possibly counterproductive austerity budgets.
Previous in TP Yglesias
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