Merkel likes the market discipline being enforced

To the calls from many for the ECB to print euros to buy larger amounts of European bonds and for Germany to accept the issuance of euro bonds, both are resisting for the predominant reason that they want to hold Italian and Spanish feet to the fire and not ease any pressure on them to reform. On the story of Germany becoming more amenable to a euro bond, Merkel thought otherwise as she said it would “level the difference” in interest rates in the region and that “would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.” Italy sold 6 month bills at a yield of 6.5% vs 3.54% paid last month. Fitch downgraded Portugal’s credit rating yesterday to junk, in line with Moody’s and Moody’s lowered its rating on Hungary to junk, 1 notch below S&P and Fitch. French consumer confidence fell to the lowest since Feb ’09. Germany’s IFO business confidence, out yesterday, unexpectedly rose. The German DAX however is down 10 days in a row as the bund yield rises to a 3 month high. The focus on too much debt in the western world can’t ignore Japan and S&P and the IMF had comments warning them of the state of their balance sheet. The 10 yr JGB yield is back above 1% to a 3 week high.

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