Angela Merkel Consigns Ireland, Portugal and Spain to Their Fate

With a surplus in hand, Germany has little patience with Portugal, Ireland, Spain and other nations steeped in debt. A permanent rescue fund and amendments to the Lisbon Treaty, with conditions proposed by German Chancellor Angela Merkel, will shift more responsibility for problematic debt onto bondholders and away from taxpayers. Countries will be allowed to go into what has been labeled “orderly” defaults and bankruptcy. “Austerity measures are eating deeper into the economy than expected, forcing further fiscal cuts,” write Ambrose Evans-Pritchard for the Telegraph. “[I]nvestors have just been told in blunt terms to charge a hefty risk premium on any peripheral debt that expires after 2013, with great confusion over what happens even before that date.” Evans-Pritchard suggests that moral hazard – assigning risk to the parties involved in finance or currency transactions – is sensible policy, yet delayed too long and, applied abruptly, it could have severe consequences. – YaleGlobal