“How can Europe ever recover while the following conditions pertain? Even though the following is from the “Austrian School” the argument looks good to me.”

Eoin Treacy's view Thank you for this interesting article highlighting the issues with France's financial position and its ability to service its debt. France has long had a love affair with socialism and as a result has public services that are the envy of consumers everywhere. However, paying for such largesse is an increasingly difficult challenge. One of the main problems for the administration is that they have failed to effectively communicate the dire situation of the public finances to the public. Considering the fact that the public sector accounts for considerably more than 50% of the economy, rationalisation will have electoral implications if it is not handled correctly.

A solution may eventually have to be imposed by the market. However, none of this is new information. The ECB has been making a great deal of liquidity available in order to contain upward pressure on government bonds spreads within the Eurozone and have so far been successful. French 10-year bonds spread over German Bunds have contracted from 150 basis points in November to approximately 55 and retain a downward bias.

There is no doubt that a growth strategy is necessary not only for France but all of the Eurozone. However, government bond spreads suggest that the ECB's efforts have so far succeeded in stemming investor angst towards the currency union's deficit offenders. In absolute terms, German 10-year yields appear to be forming a base and higher rates appear more likely than not over the medium term.