JakeS:

Sovereign bonds are interest rate policy instruments, not fiscal policy instruments - there is no excuse for allowing the international money markets to constrain fiscal policy, and there is no excuse for allowing the international money markets to set policy rates.

The ECB is derelict in its duties as a central bank because it isn't buying Irish bonds at above market value. The Irish need to put the thumbscrews on the ECB. Which means putting the thumbscrews on Mrs Merkel.

The problem with this is that the ECB is not doing this out of its own volition, it's right there in Article 123 of the Lisbon Treaty. Of course, one can collude one's way around that.

The irony of the situation is that Merkel is pushing for treaty change to solidify the Austrian Economics shock therapy drivel by adding her "competitiveness agenda" to the constituent treaties. There is a need for treaty change, but the needed treaty change is not more German-inspired nonsensical macroeconomics, but for instance a repeal of Article 123.

As you can well realise, this is either recipe for gridlock assuming (big if) that a coalition of member states can be assembled around the demand to not only not accept Merkel's competitiveness pact, but rather more difficult, roll back what Germany (I'd bet good money that Article 123 was written by the Bundesbank) has already written into the EU constituent treaties.

So such a coalition can only lead to gridlock. Germany might even take its marbles away in a huff. I'm not sure they wouldn't if some other member state's default crashed their banks.

Keynesianism is intellectually hard, as evidenced by the inability of many trained economists to get it - Paul Krugman