Jens Weidmann, who heads the Bundesbank and thus is seen as having clout in the European Central Bank headquarters in Frankfurt, delivered a speech yesterday really clarifying his firm conviction that the ECB should do absolutely nothing other than ensure that inflation doesn’t go over two percent. Some people feel that since the ECB is the only institution with the capacity to avert a massive disaster that inflicts huge quantities of human suffering, that this means it should act. But Weidmann says that “the pressure on the ECB as the only reputed institution that can act has increased with every failure by governments to solve the crisis” and this “lessens the imperative” on other leaders to solve the problem.
Get that? The ECB needs to fiddle while Europe burns in order to teach a lesson to all those scalawag governments out there. A new Great Depression should do the trick!
Robin Wigglesworth covers capital markets for the FT and has a rundown of the ensuing carnage, which I shall summarize for you in bullet points:
— Italian 10-year yields jumped 32 basis points to 7.02 per cent, which is the level that prompted Berlusconi’s ouster.
— In Spain a new 12-month bond yielded 5.02 percent (up from 3.6) and 18-month yieled 5.15 percent (up from 3.8).
— “France’s 10-year notes jumped 20 bps to yield 3.59 per cent – a record 188 basis points above comparable German Bunds.”
— “The FTSE Eurofirst 300 index tumbled 1.5 per cent, led by the French, Italian and Spanish markets, and have now given up all of last Friday’s gains.”
— “Belgium, Austria, and Finland’s 10-year benchmark bonds also widened markedly in early trading.”
Now Belgium and Finland aren’t really important countries in the scheme of things but this is a sign that you’ve moved into Total Chaos And Market Panic Mode. You don’t lose faith in Finland’s ability to repay debts based on shady budgeting in Greece or political dysfunction in Italy. You lose faith in Finland’s ability to repay debts when you wake up one day and realize that all European sovereigns no matter how well-run are in a third world fiscal position where they lack a lender of last resort.