Addiction to cheap and easy credit must end

THIS week saw a number of developments in the ongoing eurozone crisis, none of them particularly good news for the currency.

First, and quite startling, we saw the emergence of negative yield rates on German short-term bonds. This in effect means that investors will now pay to hold (sure and safe) German bonds rather than lend to other risky assets.

We saw the Italian yield curve invert, where investors seek a higher rate on short-term loans to Italy than they seek for longer term loans. Such an inversion preceded the bailouts of the existing programme countries, and is generally taken as a decent predictor of a looming slump.