It ain't no use, we're headed for disaster
Our minds say 'no!' but our hearts are talking faster
--Donnie Iris
Many view yesterday's EU agreement as a capitulation by Germany. Essentially, risk was re-syndicated from the balance sheets of banks lugging euro sovereign debt onto the backs of German taxpayers.
Germany has essentially signalled the loss of its individual sovereignty in for of the EU collective.
Peter Atwater cautions against this conclusion. Yesterday's events bring into ever greater focus Germany's continued willingness and capacity to support the rest of Europe.
Many view yesterday's events as Germany's willingness to write giant blank checks to the rest of the EU. Atwater disagrees, and suggests instead that Germany will likely make future funds contingent on specific and prehaps tortuous preconditions.
If Peter is correct, then markets are nowhere close to figuring this out.
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The euro area has taken a big step toward a collectivisation of risks. This weakens the foundations of a monetary union where each is responsible for its own budget.
In the future, it is going to be even harder to uphold incentives for solid fiscal policies.
~Jens Weidmann, Bundesbank's chief
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