Interesting read over at the Economist (I’ve uncovered that I somehow have an online subscription…maybe everyone with a login and/or a former subscription does.   Always late to the party.).

My favorite part:

“For France, it is very difficult to accept,” says one French minister. “We have a tendency sometimes to treat Germany as if it should just accept our ideas, because that’s what France does. But that is over.” This means that French officials have to work out new ways of retaining their influence in Europe.

It’s been interesting to see how Ms. Merkel et al have been responding to its Eurozone issues.  The dynamic in the recent past has been that while they’re suggestions/intuition/actions may be right, they need to come off as not too right, or as the article puts it, being accused of unilateralism.  But as Germany’s policies break ahead of the pack in navigating through this eurozone & global recession, the country seems to have gained some well-deserved confidence.

Good for me, bad for a lot of others.

http://baselinescenario.com/2010/04/28/wake-the-president/

With the amount of economic blogs I follow, I was bound to face a cringing reality that some of my ideas are not all that original after time has passed.

One topic I’ve written a couple of papers on is the topic of one blog I am fond of reading – Econompic Data. He talks about one currency, and the issues it poses on a single monetary policy for multiple countries. In particular: the eurozone.

Back in my time in Prague, I looked at how bond prices converged after the adoption of the euro in 1999. A year or so after, I looked at what issues the Czech Republic would face when adopting the euro (monetary policy being one of them).

There are many requirements to join the EMU to begin with – inflation, FDI, public debt and budget deficit, interest rates, exchange rates, etc. I was more concerned with interest rates, with the government needing to raise more debt, at a higher rate, at a rate not within the bounds of the EMU. As seen in 1999, the spreads between countries’ bond prices widen, not as expected. Meaning one country was seen as riskier than another. Wait, that’s not supposed to happen, right? A euro is a euro is a euro, it shouldn’t matter what country issues it, right? But it does. And it’s evidence that a single monetary policy can not float all boats.

Econompic quotes about 10 year spreads of Belgium over Germany widening, as has the Dutch, Spanish, Italian and French (fyi Germany has traditionally considered the benchmark with it’s former deutschemark being one of the strongest in Europe). Even wider if we go shorter on three month maturities.

This makes me wonder though how all countries are comparing to each other, without Germany, since Germany’s economy is slipping a bit with no effort to lend a helping hand. Actually – maybe that’s what’s going on. German investors are nervous, buying government bonds, buying down the yield as what’s happening in the US. Perhaps that is why many countries’ spreads are widening. Not because European countries have a cheaper bond, but because Germany is currently more expensive to hold. The wider spread in the shorter term is evidence of that. It shows that perhaps maybe right now it’s a bit shaky to invest elsewhere within Germany, but later on it’s considered more of the benchmark.

Am I making sense in this mild stream of conscious?

I totally forgot the original thought I had. Oh well, good enough of an argument for me!