The German approach to fiscal prudence is gaining momentum as an overwhelming number of fellow EU countries agree to new legalisms limiting their profligacy. This is all irrelevant. Germany's victory over chronically indebted southern European countries is likely to be short-lived. Markets aren't interested in what a piece of paper says about what countries are supposed to do with their budgets. Bond players, unlike politicians, live in the real world and have to earn a real living.
Portugal is about to find out how much its bond buyers want to earn their wages. Portugese bond insurance is almost as pricey as Greece's, and that's the good news. The bad news is whatever news hasn't broken yet out of Italy or Spain. I can hardly wait for one of these bankrupt Continental governments to call the EU's bluff on fiscal discipline. The country that goes first will learn the hard way how painful it feels to be shut out of debt markets. The countries that may want to follow next will think harder and delay even longer. The countries that remain euro-bound will eventually wonder why they didn't exit first.
Full disclosure: No positions in European equities or the euro currency at this time.
