Germany's insistence that banks and bond markets must in future share the pain of any euro zone sovereign debt default could force some economies toward bankruptcy, Greek Prime Minister George Papandreou said on Monday.
"Some have suggested, such as the German government, that bond markets, banks that finance nations with high debt should be prepared to take the cost of a possible default or haircut in the future," Papandreou said during a visit to Paris.
The Socialist prime minister said Germany's position had "created a spiral of higher interest rates for countries that seemed to be in a difficult position, such as Ireland or Portugal."
"This could create a self-fulfilling prophecy ... It's like saying to someone in difficulty, 'I will put an even higher burden on your back.'"This could break backs. This could force economies towards bankruptcy."
Borrowing costs for many peripheral euro zone countries have jumped since a European Union summit last month agreed on a crisis resolution mechanism for countries unable to service their debts, designed to eventually shift some of the burden of for future debt issuance onto the private sector.Couple thoughts:
Yields have increased because investors are being told moral hazard is on the decline and they might be on the hook? This is a bad thing? Perhaps Greece should look at Argentina - investors took it on the chin - as they should. Greece has also been in default more than it hasn't been in default. Come on. I think he forgot to mention the hedge funds and CDS. Maybe Germany is long Greek CDS (would kinda be funny, no?).
You wanted global money. You got it. You have sold your soul to the market and its coming back to you now.
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