“ Before the start of monetary union in 1999, EU countries borrowed at different interest rates, the spreads reflecting expectations about future exchange rate realignments and default probabilities. With the arrival of the euro, spreads almost disappeared. Just as subprime CDOs enjoyed triple A ratings because of the way they were constructed, the entire eurozone enjoyed a triple A rating on the back of Germany’s. This produced a massive credit boom in Spain and Portugal, and those credits were recycled through the eurozone banking system. Bankers in Düsseldorf, Munich and Paris bought those Spanish mortgage obligations and Greek sovereign bonds, proudly adding them to their fine collections of subprime CDOs.”
And they packaged the debt again, non-transparently, as part of the eurozone bailout last week. Hmm…
Source: ft.com
