Europe Short on Cash as Bond Fears Deepen

Unlike politicians, global investors are strict taskmasters. Banks are warning that European governments can no longer take the capital markets for granted in financing public projects, writes Stefan Kaiser for Spiegel Online. His article describes Germany as a safe haven, but shortly after the article was posted, a German auction sold only 65 percent of €6 billion in 10-year bonds. Investors are cautious, fearing the precedent of reduced earnings since the 50 percent haircut on Greek debt approved by the European Union in October. Government bonds, normally regarded as a safe investment, have become high-risk, testing the capitalization of banks with large holdings of sovereign debt. Kaiser concludes that investors expect Germany to bail out Europe: “Either Germany will have to guarantee the debts of other euro-zone countries in the form of euro bonds. Or the ECB will have to jump in and buy massive quantities of bonds from highly indebted currency zone members.” – YaleGlobal