In Europe the sovereign debt crisis is spreading like contagion. It has engulfed not only the pigs — Ireland, Spain, Portugal, and Greece — but has spread to Europe’s third largest economy, Italy. And from there is spread to the second, France.
But the northern tier is exempt? Wrong! As of today it has spread to the Netherlands, Finland, Austria, and others previously exempt.
Only German bunds are exempt. They are considered to be a safe haven like U.S. treasuries. Yields on bunds are headed in the opposite direction — down.
What is needed in Europe is for the ECB to become the Bundesbank. and for the ECB-Bundesbank to become like the Fed in its powers. It needs to be able to lend directly to member governments and to issue only bunds as bonds in which all countries participate. In other words, Europe needs a single economic system.