Podcast: In The Room
Ramon Fernandez: "Reality took its revenge"
On 19 October 2010, German chancellor Angela Merkel and French president Nicolas Sarkozy agreed in Deauville to drop automatic penalties for governments that violated the euro area's budgetary rules. The trade-off for the Germans, however, was that bondholders should take a hit in future country bailouts.
"Spreads increased, I think, by 300-350 (basis) points in the following weeks," recalls Ramon Fernandez, the director-general of the French Treasury from 2009-14. "The signal for bondholders was basically: run away because, if there is a problem, you are going to be trapped and you will be facing debt restructuring. So it's a very interesting example of how morale - what should be good in terms of equity - faces a big contradiction with the principle of reality. Being pragmatic, understanding how markets would evolve was fundamental at the time and here politics were stronger than reality. And, in fact, reality took its revenge".
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In The Room is a series of conversations with officials who played crucial (behind the scenes) roles in the development of the EU.
Edited and produced by davidstudio.