The BBC released a series of graphs from the top economists that highlight and summarize 2011 from a visual standpoint. My personal favorite shows the interest rates of the European Monetary Unit (EMU) members:
There are a few things that this graph really brings to my mind. The first is that markets can be horribly long for an extended period of time. Do I really believe that 2008 and the bankruptcy of Lehman created the disparity between the countries’ default probabilities? Likewise, do I really believe that the countries became equal in credit risk when they merged into the EMU in 1999?
In addition, if there was an improvement in certain fiscal optics in 1996-1999 before the currency merger, were they actually real? I think it is rather obvious that the countries with the worst fiscal issues “cooked the books” so that they could join the Eurozone currency pact and ride on the backs of the more fiscally disciplined brothers. Do I feel sorry for Germany and France? Absolutely not. In fact, they did not abide by their own fiscal rules in 7 of the 11 years while in the Eurozone.