Debt repayment is driving the EU back to recession
Italian bond rates are on the way up again. Spanish bonds are following in their wake. Among the credit rating agencies, Moody's says the eurozone deal last week was weak and added little to previous emergency summits. In its opinion, the eurocrats gathered for a lengthy chat and neglected to give any details for future action. Standard & Poor's is expected to strip France of its AAA status any day.
But the more accurate reference point is the first world war because the German solution to the problem is to impose a "reverse Versailles". Everyone that owes money after the war (or in this case credit crunch) must repay in full (please ignore in Athens). Failure to put in place measures to restrict spending will be met with … a punishment of some kind … possibly ejection from the eurozone, who knows? So far, President Sarkozy and Chancellor Merkel have used exclusion from the inner circle as the chief threat.
The imposition of debt repayments by Berlin is reminiscent of the post-first world war Versailles treaty that demanded Germany repay its debts to France, Britain, Belgium, etc.
As the German economic historian Albrecht Ritschl argues, Germany repaid very little of its reparations bill, and what it did pay was borrowed from the Americans. It is a strange irony, that here we are, 90 years later, repeating the same mistake, only now it is history's victim that is pursuing the misguided policy.
http://www.guardian.co.uk/business/economics-blog/2011/dec/12/debt-crisis-ratings-agencies
