Olli Rehn, the EC-VP had a comment in the FT on how there was light at the end of the euro tunnel and that persistence during these lean times would take the euro home. A few issues:
"Ireland has returned to the debt markets. In September more private capital moved into Spain than out for the first time in 15 months. And Italy recently sold 10-year debt at the lowest yield since 2010. That was clear recognition of the resolve shown by Mario Monti’s government to boost competitiveness and pursue sound public finances. With Italian bond yields on the rise again after Mr Monti’s decision to stand down, it is also a reminder of the need to maintain resolve in the future."
The last line is, in a sense, true. One could pick holes in the Full Monti's agenda but there's a reason why you don't know what you've got till it's gone. What Italy certainly doesn't need is more Berlusconi - the markets will tell you that.
Basically, Rehn makes the case on the premise of the trajectory we've seen in borrowing costs over the past few months and in doing so he might be underestimating how sensitive an issue perceived credibility is. It seems a bit naive to see capital flowing back into Spain as a portender for better times ahead rather than a broad indicator boosted by short-term conditions.
But he also admits that reductions in certain current account balances (namely the deficit countries) need not necessarily be a positive indicator of a rebalance. After all, there is no compulsion on a creditor to adjust. Furthermore, he agrees that a stimulation of domestic demand in Germany, for example might not have a significant impact on countries not closely enough linked with German trade channels (Central European economies). Hence, the issue turns back to competitiveness and in turn to Germany being willing to uncheck a rise in wages in line with productivity gains.
Given Rehn's mandate and position, it's apparent what the call is for. What he can't do, of course, is tell you how long the tunnel is.
"Ireland has returned to the debt markets. In September more private capital moved into Spain than out for the first time in 15 months. And Italy recently sold 10-year debt at the lowest yield since 2010. That was clear recognition of the resolve shown by Mario Monti’s government to boost competitiveness and pursue sound public finances. With Italian bond yields on the rise again after Mr Monti’s decision to stand down, it is also a reminder of the need to maintain resolve in the future."
The last line is, in a sense, true. One could pick holes in the Full Monti's agenda but there's a reason why you don't know what you've got till it's gone. What Italy certainly doesn't need is more Berlusconi - the markets will tell you that.
Basically, Rehn makes the case on the premise of the trajectory we've seen in borrowing costs over the past few months and in doing so he might be underestimating how sensitive an issue perceived credibility is. It seems a bit naive to see capital flowing back into Spain as a portender for better times ahead rather than a broad indicator boosted by short-term conditions.
But he also admits that reductions in certain current account balances (namely the deficit countries) need not necessarily be a positive indicator of a rebalance. After all, there is no compulsion on a creditor to adjust. Furthermore, he agrees that a stimulation of domestic demand in Germany, for example might not have a significant impact on countries not closely enough linked with German trade channels (Central European economies). Hence, the issue turns back to competitiveness and in turn to Germany being willing to uncheck a rise in wages in line with productivity gains.
Given Rehn's mandate and position, it's apparent what the call is for. What he can't do, of course, is tell you how long the tunnel is.
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