A Transmission Belt of German Supremacy

 

ROME/BERLIN (Own report) – German politicians and media are intensifying pressure on Rome in anticipation of today’s EU Commission verdict on Italy’s national budget. Already last week, EU Budget Commissioner Günther Oettinger announced, in reference to the Italian deficit, that the Italian government must “correct” its draft budget. Media reports refer to a “black week” for Rome. Negative reporting – like rating agencies’ devaluation of Italy’s creditworthiness – can contribute to the destabilization of Italy’s financial and credit markets. The country’s current downward spiral threatens to re-escalate the banking crisis. Whereas Berlin insists that the EU take sharp measures against deficits, Germany’s Finance Minister at the time, Wolfgang Schäuble had prevented the EU Commission from taking measures against excessive surpluses, which the commission sees as potentially just as destabilizing. Germany has been achieving these surpluses year after year.

France rebels against austerity as Europe’s recovery collapses

France’s finance minister sends tremors through European capitals with a defiant warning that his country would no longer try to meet deficit targets

Eurozone strategy is in tatters after economic recovery ground to a halt across the region and France demanded a radical shift in policy, warning that austerity overkill is driving Europe into a depression.

Growth slumped to zero in the second quarter, with Germany contracting by 0.2pc and France once again stuck at zero. Italy is already in a triple-dip recession.

Yields on 10-year German Bunds fell below 1pc for the first time in history, beneath levels seen during the most extreme episodes of deflation in the 19th century. French yields also touch record lows. Much of the eurozone is replicating the pattern seen in Japan as it slid into a deflation trap in the late 1990s.

It is unclear whether tumbling yields are primarily a warning signal of stagnation ahead or a bet by investors that the European Central Bank will soon be forced to launch quantitative easing, buying government bonds across the board.