Sic Transit Gloria Euromundi

It's Monday, the day-after-the-rescue-before, Greek 10yr bond yields are up 11bps,  and both Spain and Italy's are up 25bps, and the EuroStoxx 50 is down nearly 1.1% on the day.

For me, the best commentary on last week's package is from J.P. Morgan's David Mackie, and I hope he will forgive me quoting him at length:

'Many commentators assume that because the Euro area’s consolidated fiscal position is better than the US’s, then a Eurobond that simply aggregates Euro area sovereign debt with a joint and several guarantee will be rated the same as US treasuries. But this may not necessarily be the case. The creditworthiness of US treasuries depends on the power of the US government to tax citizens and control public spending across the entire country. In a simple Eurobond without any change in governance, the creditworthy countries only have the power to tax citizens and control public spending in their own jurisdictions. They would not have the power to tax citizens and control public spending in the less creditworthy countries. 

Thus, if we get to a situation where Spain and Italy lose access to capital markets, a Eurobond as a simple piece of financial engineering would not solve the problem. The creditworthy half of the region would not be able to bear the burden of the less creditworthy half. Only a move to a fiscal union where either governments in the creditworthy half had the ability to tax citizens and control public spending in the less creditworthy half, or alternatively where the creditworthy countries had the ability to control debt issuance by the less creditworthy countries, could save the region. Thus, when a common Eurobond is most needed, say if Spain and Italy were to lose market access, it would be the least effective unless accompanied by huge governance reforms."