Euro Seesaws on Bond Spread Plan

Not going to happen, according to a spokesman for the German finance ministry, who said he was unaware of any plans to target bond spreads and that Germany’s central bank does not support such a plan. Spanish and Italian bonds, which had been falling following Spiegel’s story, have turned higher again. Spain’s two-year bond yields, for example, fell from about 3.82% early this morning to about 3.34% and have now risen back to 3.48% following the German government’s statement.

Anyone who is surprised by this has not been paying attention. Germany has no interest in committing itself either to a (very large) fixed contribution to a eurozone stability fund, nor does it want to give the ECB authority to buy sovereigns, especially if the bond yields are tied to the German bunds.

Germany’s Constitutional Court is due to rule next month on whether the German government is allowed by its constitution to contribute to the eurozone’s stability mechanism fund. Germany is not likely to do anything more until that ruling is in — and there’s at least an even chance that the court will rule against the contributions. Then the Germans will have to go to Plan J — or is it Plan K?

Paul Ausick