"We are heading towards fiscal union or break-up," said David Bloom, currency chief at HSBC. "Talk is no longer enough as the fire threatens to leap over the firebreak into Spain and Italy.
"What the market is worried about is Germany's long-term committment to the euro project. If we see unreserved and absolute backing from the political establishment of Germany, that will be a soothing balm."
Chancellor Angela Merkel seemed in little hurry on Tuesday to convey such a message. There will be no "spectacular step" at the Justus Lipsius building on Thursday; just a "controlled process of gradual steps and measures", she said with unflappable calm. Given the simmering wrath from top to bottom of German society, it may be impossible for her to do much more.
Jens Weidmann, the Bundesbank's president, has made her task that much harder by telling the eurosceptic Bild Zeitung that "nothing would destroy the incentives for a solid budget policy more quickly and more permanently than joint liability for national debts. European and especially German taxpayers would have to answer for the entire state debt of Greece. That would be a step toward a transfer union."
Days earlier he shot down proposals for issuance of eurobonds or use of Europe's rescue fund to buy Spanish and Italian bonds on the open market, crucial steps to prevent Italy and Spain being drawn into the maelstrom. "It has a high cost, limited use, and dangerous secondary effects," he said, departing radically from the script of the European Central Bank.
The Telegraph
More:
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8648418/Only-Germany-can-save-EMU-as-contagion-turns-systemic.html
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