Interesting post from Yves Smith on the Bundesbank’s behind-the-scenes moves against a Greek bailout:
It seems the wheels are coming off the European experiment. Yesterday, we had a huge meltdown in Greek bonds. Media reports suggest that a recent article in German daily Frankfurter Rundschau are what triggered the latest selloffs in Greek sovereign debt (See the Telegraph’s account here; hat tip Swedish Lex). This article leaked portions of a Bundesbank report which demonstrated its vehement opposition to the joint EU-IMF bailout cobbled together by Angela Merkel and Nicholas Sarkozy.
The Bundesbank paper goes as far as to suggest such an aide package is unconstitutional. However, it also indicates that it fears the IMF will be less stringent than the Eurogroup, something that flies in the face of all logic. To me this suggests an institutional bias against a bailout for which the internal memo provides intellectual cover. Clearly, this level of institutionalized opposition to a bailout in Germany makes a bailout less likely, even with IMF involvement.
You can read the full source article here but it’s in German, so I’ll just be trusting Yves’ translation and summary. I’ll also say that by far the most terrifying conversation I ever had with a policymaker is when my junket to Germany last fall took us to an off-the-record chat with the President of the Bundesbank. Normally the host of a session like that is able to at least mildly impress his audience (or maybe I’m just easily impressed) but Axel Weber was acting like a cartoon version of a hard money German, giving the impression that he’d rather watch his mother starve to death rather than risk 2.7 percent inflation for a quarter.
Meanwhile, Ed Gresser sent me the Eurozone trade figures I couldn’t find the other day and they confirm that we do substantially more trade with the Eurozone countries than with China. We import a bit less from them than we do from the Chinese, but we export much more to them. So the failure of Europe to adopt growth-oriented policies strikes me as at least as much problem for the US economy as anything the Chinese are doing with their currency.