If you want proof that the Eurozone’s sovereign debt woes are fundamentally about the governance of the single currency and the odd behavior of the European Central Bank, then look no further than the fact that Germany’s 10-year borrowing costs are now higher than the UK’s. It’s very difficult to explain this in terms of the kind of scolding moralism that the Germans have been deploying this fall to explain borrowing problems in the Mediterannean countries. The British aren’t out-exporting the Germans. The Germans don’t have a bad work ethic or a corrupt political system. The German government hasn’t been more profligate than the British government in running up debt over the past 10-15 years. The Bank of England has been much less focused on fighting unemployment than has the Bundesbank/ECB. And over the past year the growth performance of the UK has been terrible as austerity budgeting crushes domestic demand and the economy continues to lack appropriate structure for export-led growth.
And yet financial markets would rather lend to the UK. Because the UK’s not in the Eurozone, and because everyone knows the UK’s central bank isn’t going to let anything crazy happen or get into any wild games of chicken.