| When politicians fail to lead, or even to grasp the problem, never mind coming to grips with sustainable solutions, what happens? The first is that financial markets express their views loud and clear, and the second is that central banks do whatever they can to make up for the lack of action on fiscal and structural matters. This sense of central banks concluding that they have to act where politicians fail is found on both sides of the Atlantic. Anticipation of QE3 from Jackson Hole, or something very close to it, has led to a stock market rebound (and further USD weakness), while the ECB has bought time in buying sovereign bonds, even from large countries. |
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| Last week, we looked at the political constraints on politicians, particularly German leaders, which discourage them from pushing for a “Eurobond structure”. A figure of EUR 47 billion is being floated as the cost to the German taxpayer of higher interest rates if the euro zone were the sovereign bond issuer, rather than individual Ministries of Finance. We do not believe this figure, which seems to be based on an assumption about averaging, and is being used as a scare factor. |