Reply #106: Germany’s Opponents of Common Bond Provoked by U.S. Downgrade

[Demeter]

http://www.bloomberg.com/news/2011-08-16/germany-s-opponents-of-common-bond-provoked-by-u-s-downgrade-euro-credit.html

Chancellor Angela Merkel’s resolve to defend Germany’s top credit rating in the wake of Standard & Poor’s U.S. downgrade is at odds with the likely expense of containing Europe’s debt crisis.

Merkel faces a domestic audience both wedded to Germany’s AAA rating and divided over whether Europe’s largest economy should provide financial succor to its currency-union partners in the form of common bonds. Mohit Kumar of Deutsche Bank AG estimates an aggregate credit rating of AA+ for the euro region, a notch lower than Germany is used to, which would make it impossible to maintain a top grade while allowing Euro bonds.

“A transfer union where Germany pays for the debt of other countries, but has no access to their tax revenues, would probably be the worst outcome for Germany’s rating,” said Kornelius Purps, a strategist at UniCredit SpA in Munich.