|Image © Agência Brasil|
Italy’s bond market sure likes Mr Monti’s 30 billion euro austerity budget. The yield in the chart is Friday’s close but at the time of writing, yields had dropped nearly 50 basis points more and by this Friday they could be 100 or 150 bps lower.
That’s because Mrs Merkel has made her mind up and, like that other lady, she’s not for turning! The root of the problem needs tackling with nothing short of a transfer of fiscal sovereignty to the federal level. For Mrs Merkel, and the markets, here lies what is critical to credibly resolving the issue of eurozone debt sustainability and to ensuring budget discipline.
Mr Sarkozy has yet to be convinced. He acknowledges the need to be tough on fiscal discipline but doesn’t like the idea of losing sovereignty over the budget process. Of course he has also got his eye on an election and on political rivals who do not wish to cede sovereignty in any way shape or form. More >