Markets and Merkel won’t let austerity slip

Last week’s rise in peripheral euro-zone bond yields mainly reflected contagion effects from Greece’s sell-off, rather than general fiscal concerns. Indeed, draft 2015 budgets showed most countries planning to meet their deficit targets this year.

Nonetheless, the fragility of market sentiment towards the peripheral countries and Angela Merkel’s insistence that they respect budgetary rules suggest little scope for austerity plans to be scaled back.