SPANISH bonds fall even as Rajoy unveils more budget cuts...
Many euro-zone officials appear to have an acute awareness of
the dynamics of moral hazard. Step in to minimise the damage
wrought by markets scared of a country's debt, they say, and
that country's government will feel it has a license to budget
recklessly. We must always be conscious of the incentive effects
of our actions, they lecture.  Well let's be conscious then. Say
you're an economy that entered the crisis with a low and falling
debt-to-GDP ratio, but which was nonetheless swept into the
broad peripheral bond-market panic. Say that, despite your low
debt level, euro-zone officials have consistently demanded of
you ever stricter austerity programmes. Then say that these
programmes failed to win market confidence (since overall
indebtedness was hardly the cause of your initial troubles), and
that the recession they generated has undermined whatever
positive fiscal impact they might have been expected to have.
What incentives do you face? It