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Marketplace
European Debt Crisis

Has the debt crisis spread to Germany?

Josh Brown Nov 23, 2011
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JEREMY HOBSON: Well now to the big news out of Europe this morning: Germany, the biggest and strongest economy, had what’s being described as a disastrous bond sale this morning. The country tried to borrow about $8 billion from the bond markets but could only sell about $5 billion worth. In other words, investors saw German bonds as too risky.

For more, let’s bring in Josh Brown of Fusion Analytics. He’s with us live from New York as he is every Wednesday, good morning.

JOSH BROWN: Hey, how’s it going.

HOBSON: Good Josh. So tell me, why are people so worried about Germany now?

BROWN: You know, Germany was the pillar of strength for Europe for so long, and all that we’ve been doing this week after week, looking at each European country and the struggles they’re having. But this is by far, I think, the most consequential thing to happen in terms of a bond auction gone bad. I don’t know if this is the disaster to end all disasters, but it is the worst German bond auction we’ve seen in as long as I can remember and it is absolutely a sign of the times.

HOBSON: And what are they going to do now? What is the next step for Europe if Germany’s in trouble?

BROWN: Well, Germany doesn’t completely rely on each bond auction and short-term funding, the country will be okay. But what this is I think is a wake-up call to the people in Germany, in France, the ratings agencies, the central bankers. I think this is where they say, “OK, we were going put this off and not do anything and let the market take its course, but now maybe we need to step up and do something.” So to that extent, it may be a positive if it forces them to act.

HOBSON: And by act, I assume you are talking in part anyway, about this idea of eurobonds, basically to have the European Central Bank act a little bit more like the Fed and start printing its way out of trouble.

BROWN: Yeah, I don’t want to give anyone the impression that that’s something that could happen tomorrow just because ten people in a room agree to it. It’s obviously something where rules and laws are going to have to change, treaties are going to have to change. But in an emergency, you take some of these mandates, like the E.C.B is only there for price stability, and you throw them out the window because the penalty for not acting is significantly worse.

And we saw this go on here in the U.S., in 2008. The Fed, the Treasury, they did all kinds of crazy things that were not in their power to do. But because they did them, for better or for worse, we did not have a Great Depression. And I think that at a certain point, the hands-off attitude is going to stop in Europe and the Germans — who really are in control — are going to get serious about fixing this.

HOBSON: Josh Brown of Fusion Analytics, thanks as always.

BROWN: Thank you.

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