Danke, Frau Merkel!

So, there is a danger of rising interest rates as the Government begins to offload their huge deficits onto the bond market. It has been part of the denial line that there is any such danger. Angela Merkel, thankfully, has let the big cat out of the bag. She is worried, as she has every right to be, about the consequences of Governments trying to raise over £2,000 billion in loans during this year alone. The German Chancellor has many abilities, but I doubt whether they extend to regimenting an ordered issue of bonds from debtor countries. Her aim is not only to coordinate Europe, but the whole world! There is simply too much debt coming from too many countries for that! What Mrs Merkel has not factored in, in public, at least, is the credit ratings of the debtor countries. When your credit rating is in free fall, you are not going to stand in an orderly line supervised by Mrs Merkel: you will have to bob and weave like mad to get the money, and pay over the odds. Hence the rise in long term interest rates. It is almost certain that Britain will lose its triple-A credit rating later this year. Sorry, not yet to have any cheering news. The Government needs now to start planning if it is going to counter a sterling crisis and a gilts strike that will whack the economy sideways later this year.


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