by Calculated Risk on 8/16/2011 08:11:00 PM

Just an update on the Merkel / Sarkozy meeting earlier today. As expected there was no annoucement of a "eurobond" and no expansion of the EFSF.

Merkel and Sarkozy proposed closer coordination of economic policy in the eurozone. The fear in Germany is that closer coordination means a step towards a fiscal union - and to many Germans that means a transfer union ... here are a few stories:

From the NY Times: Sarkozy and Merkel Call for More Fiscal Unity in Europe

France and Germany also proposed the creation of what Mr. Sarkozy called “a true economic government for the euro zone” that would be made up of heads of state of all of the 17 nations that share the European currency. This council, he said, would meet at least twice a year and would be led by a president who would serve for a term of two and a half years. He said he and Mrs. Merkel would jointly propose that Herman van Rompuy, a Belgian and the current president of the European Union, be the first to take on this role.
...
“What we are proposing here is the means with which we can solve the crisis right now and win back trust, step by step,” Mrs. Merkel said. “I do not think euro bonds will help us in this.”
...
“Euro bonds can be imagined one day, but at the end of the European integration process not at the beginning,” Mr. Sarkozy said.

From the WSJ: Fresh Plan for Europe Crisis

From the Financial Times: Merkel and Sarkozy pledge to defend euro

Here are the bond yields as of Tuesday. Here is a graph of the 10 year spread (Italy to Germany) from Bloomberg. And for Spain to Germany. The Italian spread is at 267, down from 389 on Aug 4th, and the Spanish spread is at 266, down from 398 on Aug 4th. The yield on the Spanish Ten and Italian 10 year bonds are under 5%.

Also the Irish 2 year yield is down sharply to 8.9%. And the French 10 year is under 3%.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

Earlier:
• Housing Starts decline slightly in July
• Industrial Production increased 0.9% in July, Capacity Utilization increases
• Multi-family Starts and Completions, and Quarterly Starts by Intent
• Lawler: Early Read on Existing Home Sales in July