There is an increasing body of opinion that thinks the eurozone will break up. The evidence of increased tension is expressed in the spreads of bond yields to German government debt of the weaker periphery countries. These have widened dramatically, reflecting the poorer fundamentals of these countries. However, the absolute cost of their government debt has hardly shifted, because of declining long rates globally. The weaker eurozone governments are paying now much the same as they paid before.
The one exception is Greece. But with all due respect to this cradle of European civilization and coffin of good macro-management, the Greeks do not matter much for the euro. Their GDP is 2.5% of the eurozone’s, while Spain’s is 11%. And it is Germany’s 27% share that really matters....
