The turkey gobblers aren’t here yet, so let’s take a moment to note the record lows being hit in European bond markets:
As many people have pointed out, those ultra-low German rates are about weakness, not strength — basically, the market is pricing in many years of a depressed euro area economy with very low inflation (the implied expected inflation rate from index bonds is around 0.7 percent over the next five years.)
But the number that really jumps out at me here is France, with borrowing costs at a historical record low under 1 percent. And that is very interesting indeed.
After all, not very long ago we were being assured that France was on the edge of fiscal meltdown, that it was ready to become another Italy or Spain. Here’s a sample.
It turns out, however, that even Italy and Spain weren’t the next Italy and Spain — most of the spike in their borrowing costs was about self-fulfilling panic, which went away once the ECB started doing its job. And France is now paying only a small spread against Germany. It’s true that the French economy is sluggish — but a lot of that is because of the austerity imposed to head off an imaginary fiscal crisis.
What you see, above all, is that Greece — which exerted immense influence as a supposed template for what was going to happen to everyone — was and is sui generis. (What’s the Greek for that?) Europe’s problem isn’t fiscal, and never was.