Phew, said Portugal yesterday. Yippee, said Germany. It don’t add up, suggests a top economist.

Portugal went along and did it yesterday. It successfully sold 1.25bn euros’ worth of bonds. Markets had expected its sales push to fall flat. Well done you, Portugal. Mind you, the interest rate it is paying on these bonds is an average of 6.719 per cent. Compare that to the yield as of this morning on ten-year UK government bonds of 3.64 per cent, or 3.04 per cent for German bunds.

So Portugal keeps insisting it doesn’t need help. When she joined the euro its populace were pretty chuffed. To them it felt as if their country had joined the Premier Division, and they were proud of their new status. And maybe it is this same pride that is stopping Portugal from holding its hands up, and saying, Okay, we need help.

So, it could go to the EU, and could avail itself of the money it needs, and would almost certainly pay much lower interest rates. Its pride might be hurt, but in other respects it would be the winner.

Of course, one solution to the problem facing the likes of Portugal might be these euro bonds. The bonds are issued on behalf of all Eurozone countries, and as a result Portugal and co. will pay much lower interest rates.

But Germany doesn’t like that idea. You can understand why. Germany, the frugal country that made such sacrifices to fund reunification is pretty unenthusiastic about any kind of bailout.

But then it’s a little puzzling. On the one hand we are told the Eurozone cannot fail, and no country will default. On the other hand, euro bonds are quashed. Well, which one is it? You can’t have both.

That’s why the celebrated economist Kenneth Rogoff, co-author of the highly acclaimed book “This time it is different”, said in the FT this morning: “Eurozone macroeconomic policy is incoherent on so many levels, it is hard to know where to begin. The basic strategy is to hope that fiscal tightening in the periphery combined with generous liquidity relief from the core will solve all ills. The only problem is that the populations of Greece, Ireland, Portugal and perhaps Spain, cannot be asked to suffer recession indefinitely so that foreign creditors can be repaid. Rather than contemplate reintroducing the drachma, the eurozone decided to celebrate the new year by taking in Estonia. Estonia is a great country, and it deserves a lot of support. I grew up on Estonian grandmaster Paul Keres’ chess books. But did it really make sense to add another emerging market at this time?” See: Euro looks set to win the race to the bottom http://www.ft.com/cms/s/0/bd4a8af0-1e59-11e0-bab6-00144feab49a.html#axzz1AoBm2GVu

Meanwhile, data out yesterday showed that Germany expanded by 3.6 per cent in 2010 – at least that’s what the provisional figures say. It was the fastest growth rate since reunification. Mind you, it wasn’t enough to reverse the contraction in 2009, when the Germany economy shrunk by 4.7 per cent.

German exports grew by 14.2 per cent, but household spending was up by a paltry 0.5 per cent. For as long as Germany’s growth in GDP outstrips growth in household spending, Germany is adding to global imbalances, and probably making the problems in the indebted bits of the Eurozone worse. And yet, Germans are scared that tax will rise to fund the bailout of Greece, Ireland, Portugal, Spain and co. As they are scared they spend less, making worse the problems in those same countries that they are so worried about.

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