By Rainer Buergin
Germany’s top finance officials warned investors against prematurely celebrating an overhaul of Europe’s economies four years after they plunged into crisis.
“It’s good that markets have become more confident again,” Finance Minister Wolfgang Schaeuble told reporters in Washington yesterday during the spring meetings of the International Monetary Fund. “But I’ve said that in parts they’re already exaggerating again.”
Bundesbank President Jens Weidmann said yesterday at the same IMF meetings “there’s a discussion about a stability risk that’s created by financial markets in a certain way running ahead of adjustment processes.”
The call for caution came days after Greece returned to debt markets for the first time since 2010 in another sign the crisis which raised doubts over the euro’s existence has ended. The bonds of Europe’s higher-yielding nations have surged this year as investors embrace markets they shunned during the turmoil.
“It has to be clear that the successes we’ve had must not lead us astray,” Schaeuble said. “We’re on the right track but it has to be continued. In every human society, complacency is one of the great dangers.”
Weidmann said “doubts about the implementation of promised reforms could lead to a re-evaluation that could materialize in higher risk premia.”
French Finance Minister Michel Sapin said in an interview yesterday in Washington that markets were trying to strike the right balance between enthusiasm and prudence.
“The market is anticipating that things are better, that they will get better, with a certain volatility,” he said.
Greek bonds returned 28 percent this year through April 11, according to Bloomberg World Bond Indexes, the best performer among euro-area sovereign debt markets. The country sold 3 billion euros of five-year notes via banks on April 10, receiving about 600 orders, for a total of around 20 billion euros, according to a person familiar with the sale.
Greece’s 10-year bond yield fell on April 9 to as low as 5.80 percent, the least since February 2010.
Elsewhere in the region, Italian bonds have gained 5.8 percent this year with the rate on the 10-year security dropping on April 7 to 3.14 percent, the least since Bloomberg started collecting data in 1993.
“There is always more volatility when there is more movement,” Sapin said. “The market is looking for an equilibrium but the signal it’s sending is that things are much better in Europe, and that with tailored policies, with budgetary rigor and growth policies we can have a European situation that comes back to Europe’s more habitual levels.”
For all the relief, Dutch Finance Minister Jeroen Dijsselbloem said in an April 10 interview in Washington that Greece may need another round of international aid depending on how conditions look in a few months.
Germany wasn’t alone in using the IMF meetings to warn investors. U.K. Chancellor of the Exchequer George Osborne said they should prepare for greater market volatility as the global economy strengthens and monetary policies shift.
“It is something we need to be communicating more so that it is priced in and that people expect this return of normal volatility in those markets and it’s not a surprise when it happens,” Osborne said.
To contact the reporter on this story: Rainer Buergin in Berlin at [email protected]
To contact the editors responsible for this story: Chris Wellisz at [email protected] Chris Fournier, Brendan Murray