May 22, 2010
We understand that the bailout of Greece and other Southern European fiscal miscreants is unpopular in Germany, whose taxpayers will shoulder much of the cost. We further understand that Angela Merkel, the German chancellor, had to appease public opinion to win approval for the bailout in Germany's parliament. Still, her government's sudden and unilateral ban on "naked" credit default swaps this week was not the way to do it. It was so transparently political and, in policy terms, so irrational that it raised doubts about Berlin's leadership in the euro crisis. Whatever short-term domestic political benefits it had were offset by the damage it caused, and may yet cause, on financial markets across the world.