Posted by: Andy Reinhardt on November 23, 2011
On the same day that German Chancellor Angela Merkel again swatted down the idea of issuing joint euro bonds to help ease sovereign debt in peripheral euro zone nations, Germany’s own bond issuance, which fell short of objectives, caused market jitters that pulled down exchanges from Milan to New York.
Merkel spoke out against a proposal backed by European Commission President José Manuel Barroso and other commission members to issue common debt securities for the 17 members of the euro zone. The German chancellor argues that euro bonds aren’t authorized under current EU treaties and that issuing them would weaken pressure on the euro’s indebted members to cut their deficits.
Yet movements in the bond market suggested that even gold-plated German debt is no longer free of the euro zone taint: In a routine offering of up to €6 billion worth of 10-year notes, some 39 percent went unsold, spooking investors who worried what that said about prospects for weaker European countries. Though it’s normal in auctions for some bonds not to sell—that has been the case in six of the last eight German offerings—today’s was the highest “uncovered” proportion at a 10-year sale since 1995, according to Bloomberg data. “If investors do not wish to buy bunds, they do not wish to buy Europe,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank in London, in the Bloomberg News story cited above.
Against this market-shaking backdrop, the day-to-day concerns of European citizens trying to cope with the effects of the euro zone crisis can get a little lost. This week’s issue of Bloomberg Businessweek has a terrific piece by Bloomberg’s Finnbar Flynn called “The Irish Suffer Austerity in Silence,” that puts it in perspective.
Unlike the Greeks, who continue to protest against the harsh economic medicine being doled out by their government (unions there this week announced plans for more strikes in December) the Irish have been relatively sanguine about their sacrifice. Protests have been relatively few and small and the rhetoric has been restrained. One explanation offered in the story:
Many Irish realize they fueled the boom and bust by pushing up property prices and seeking pay hikes that led to a loss of competitiveness. “There is a sense that everyone was at a party that went a little too wild,” says Austin Hughes, chief economist at KBC Bank Ireland.
Many Greek citizens apparently don’t share the same sense. Even as officials from Europe and Greece ratchet up the pressure for further austerity commitments—in its interim monetary policy report today the Bank of Greece cautioned that this moment is Greece’s last chance to stay in the euro—normal Greeks resent, sometimes violently, their bitter pill. As Ezra Klein’s Washington Post Wonkblog says, “Greece’s new, technocratic government is walking a challenging tightrope on austerity, caught between the demands of the European Union and its own citizens.”
Adding an almost humorous note to the government’s economic reform efforts, Greece today announced that numerous jobs previously categorized as “heavy and arduous” and whose holders were thus eligible for early pensions were being dropped from the list. Among them: Confectioners, hairdressers, transit ticket-takers, and supermarket cashiers.
Even in countries with less sense of worker entitlement, austerity is a tough sell. Britain, outside the euro zone but facing bond-market pressure of its own, is feeling the economic pinch of reduced spending and higher taxes. This week, Prime Minister David Cameron admitted that tackling Britain’s debts was “proving harder than anyone envisaged.” The coalition government he heads with Liberal Democrat leader Nick Clegg may not be able to close the deficit by 2014-2015, as originally planned.
Public reaction isn’t as docile as Ireland’s or as violent as Greece’s, but Britain potentially faces years in the doldrums. Right-leaning London think tank Reform issued a report this week urging the government not to lose its nerve or seek quick fixes in the face of resistance. Austerity, it seems isn’t a sprint but a marathon.
Photographer: Niall Carson/PA/AP