CREDIT BUBBLE BULLETIN How the euro was really saved
Commentary and weekly watch by Doug Noland
"To the astonishment of almost everyone in the room, Angela Merkel began to cry. 'Das ist nicht fair' (that is not fair), the German chancellor said angrily, tears welling in her eyes. 'Ich bringe mich nicht selbst um' (I am not going to commit suicide). For those who witnessed the breakdown in a small conference room in the French seaside resort of Cannes, it was shocking
enough to watch Europe's most powerful and emotionally controlled leader brought to tears. But the scene was even more remarkable, those present said, for the two objects of her ire: the man sitting next to her, French President Nicolas Sarkozy, and the other across the table, US President Barack Obama.
"It would be the low point in a brutal, recrimination-filled night, one many participants would recall as the nadir of the three-year eurozone crisis. Mr Sarkozy had hoped his leadership of the Group of 20 summit would cement his standing on the global stage en route to re-election. Instead, everything was falling apart. Greece was imploding politically; Italy, a country too big to bail out, appeared just days away from being cut off from global financial markets; and Ms Merkel, try as Mr Sarkozy and Mr Obama might, could not be convinced to increase German contributions to the eurozone's 'firewall' - the 'big bazooka' or 'all of money' they believed had to grow dramatically to fend off attacks by panicking bond traders."
"It Was the Point Where the Eurozone Could have Exploded", read the headline for the first of Peter Spiegel's terrific six-part Financial Times series "How the Euro was Saved."
It's an interesting juncture to revisit the 2011-2012 eurozone crisis. Italian and Spanish sovereign bond yields are these days near record lows. Italy's 10-year yields ended the week at 3.16%, down from the crisis-period high of about 7.50%. Yields in Spain closed below 3%, after trading above 7% in 2012. European stock prices are generally not far from record highs. The bullish view is that sustainable recovery has taken hold and the threat posed to the euro and European integration has long passed. Meanwhile, Italy, with sovereign debt at 133% of GDP, has had one positive quarter of growth (0.1%) in the past 11. And despite extraordinary monetary stimulus and booming securities markets, the French economy has stagnated with unemployment above 10%.
I believe history will be written in a way that surprises most of today's pundits and analysts.