And so it continues.
For the past few weeks I have suspected that, in the end, the crisis in the euro block would lead countries to return to their atavistic tendencies and focus on what's best for themselves.
This story today could be more important than it might initially appear, in my opinion. There has long been a cultural distrust between the French and the Germans for lots of historic reasons. If the two largest and important members of the euro block do not work together, the whole process could eventually implode, and end the euro.
I don't know whether this story is true, but it does have elements that do ring true. Over the weekend a senior French official warned that France was in danger of losing it AAA credit rating unless significant fiscal steps were taken. Although the comments were later retracted (followed by the usual claim that he was "misquoted), it seems clear that France and its banks are facing their own large credit problems.
Here's an excerpt from the article which appeared in today's German on-line magazine
Spiegel:
Bailing Out French Banks
By buying up Greek debt, the ECB keeps the prices of the bonds artificially high. French banks, in particular, benefit from this policy because it enables them to sell their Greek bonds to the ECB, as an inexpensive way of cleaning up their balance sheets. France's banks and insurance companies have a total of about €80 billion in Greek government bonds on their books.
German banks, on the other hand, are not potential sellers, because they have made a voluntary commitment to Finance Minister Wolfgang Schäuble to hold their Greek bonds until May 2013.
Thus, in a roundabout way, the Bundesbank, by spending €7 billion to purchase the Greek securities, has already made a substantial contribution to bailing out banks in neighboring France.
It was ECB President Jean-Claude Trichet, a Frenchman, who, in an alarming and provocative speech, initiated the extensive euro rescue package that was approved on the weekend of May 8-9. And it was Trichet who yielded to massive pressure from French President Nicolas Sarkozy and, soon afterwards, violated a long-standing ECB taboo, namely that the central bank should never buy its member states' debt. This, however, was precisely what Sarkozy had demanded of his fellow European leaders, including German Chancellor Angela Merkel.
Then there was news from Spain, where the government is now asking its unions to relax some of its stringent work rules in order to become more competitive in the world marketplace. At 20% unemployment, Spain is anxious to bring more jobs to its country, perhaps at the expense of France.
ECB Buying Up Greek Bonds: German Central Bankers Suspect French Intrigue - SPIEGEL ONLINE - News - International
