The Euro and Sovereign Debt

My colleague Richard Swedberg sent me this wonderful graphic today. Very rarely do you see a visual presentation of data that so clearly illustrates so many things so beautifully. He first showed this at an event on the EU Financial Crisis last Friday in which we both participated.

10-Year Yield for Euro Zone Countries, 1993-2011

For Euro-skeptics (not Europe-skeptics, mind you, Euro-skeptics), this is powerful evidence that the adoption of the Euro may have papered over some fundamental differences across economies. For those skeptical of the wisdom of international financial markets, this is powerful evidence as well that, well, maybe those who lend to sovereign governments don’t think very hard about things. (Why wasn’t Greece charged a premium? It seems unlikely that differences in the capacity of Germans and Greeks to service their sovereign debts were unknowable.)

As JMP describes it, “so it looks like everyone thought Germany was just as creditworthy as Greece. Then, turns out, not so much.”