Dangerous Merkel-Sarkozy Spin

By Global Macro Monitor

Merkel and SarkozyInteresting read by some traders on the Merkel/Sarkozy nonevent. Their take away is both leaders sent a message to the PIIGS to either get on board with fiscal adjustment or leave the Euro.

Hmmmm. Now what would that do to each country’s stock of debt denominated in Euros? Would their bank and bond creditors take Greek drachmas and Irish punts as payment? If some of these countries left the Euro and went back to home currencies their debt to GDP ratios would freaking skyrocket!

Dangerous stuff being kicked around at a dangerous time. Our sense is both leaders were relieved by the success of ECB intervention to bring down Spanish and Italian bond spreads and they will continue to rely on Trichet’s monetary bazooka to fend off the wolves. Bonne Chance!

  1. Dimm says

    “If some of these countries left the Euro and went back to home currencies their debt to GDP ratios would freaking skyrocket!”
    Not true. In case of Greece 95% of their debt is issued under Greek law. So they can say 1 euro = 1 drachma , then inflation will erase their debts. That is the best case scenario for Greece, not the worst.

  2. David Lazarus says

    If the debts do skyrocket then default would be inevitable that is why the scare stories about the impact on Greece and Ireland. The French and German banks will have to accept large losses and that will shine the glare bank on the core. This is extend and pretend with Greece and Ireland suffering for banks mistakes.

  3. Linus Huber says

    It is amazing how the banks were again able to pull off this latest stunt. They made bad investment decisions while enriching themselves in the process and now that the countries in question in actuality are in default (no chance for them to ever pay back those loans in full), losses again are transfered to the tax payer. When will be make the bankers accountable? When will we start the process of taking actions against this grand theft perpetrated in broad daylight? When will enough be enough? It demonstrates how strong their lobby really is and how the politicians do the bidding on their behalf.

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