Politics cannot and will not simply follow the markets’ said a defensive Angela Merkel after the roller coaster ride of last week’s markets looked set to force a common Eurobond onto the Eurozone’s negotiating table.


In an interview on German TV the German Chancellor said that the route leading to Eurobonds would be ‘exactly the wrong answer’.

This is despite such worthies as Italian and UK finance ministers saying that it is just the right thing to do. As well as the heavyweight George Soros chiming in earlier this month saying to Der Spiegel that Eurobonds were the best answer. ‘There is simply no alternative. If the euro were to break up, it would cause a banking crisis that would be totally outside the control of the financial authorities,' Soros said.

But there are some who agree with Merkel. Andrew Lilico in the Telegraph thinks that a Eurobond, far from saving the Euro, would be its death knell.

But the markets spoke again and bank debt risk costs rose markedly in response to Merkel’s pronouncement.

And to compound the German Chancellor’s problems, according to an eGov survey, 75% of German voters have lost faith in Merkel’s ability to handle the EU crisis

Angela Merkel is trying to keep the Eurozone afloat, which will mean the German tax-payer stepping up to the mark (no pun intended), whilst keeping the German voter who put her there as happy as she can. A very difficult balancing act.

As Barclays Capital’s New York-based strategist Michael Gavin wrote in a note and quoted by Bloomberg “The European debt crisis could go very badly wrong, and even if it does not, investors’ anxiety that it might could create tensions in global banking systems that further undermine the world economy.”

Now who’s your money on, the politicians or the markets?

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