In Radical Change To ECB's Tune, Bundesbank Confident Euro Can Withstand Greek Default

Tyler Durden's picture

In yet another bad omen for Greece, now that Bailout Plan #2 has been demonstrated to be impractical and every question related to it is met at best with silence, it is back to plan B: letting Greece default. And in what is very good news for longs in the Drachma black market (which is already offered on an "when issued" basis by several large financial institutions), the Bundesbank's president Jens Weidmann just announced that “If the [Greek] commitments are not met, that cancels the basis for further funds from the aid package,” Weidmann told the newspaper. “This would be Greece’s decision, and the country then would have to bear the surely dramatic economic consequences of a default. I don’t think this would be sensible, and it would surely put partner countries in a difficult situation. But the euro would even in this case remain stable.” Translation: we now believe our banks are well enough reserved for what comes next. It also means that the rift with the ECB, which will be exposed as near-insolvent courtesy of using Greek collateral for tens of billions of loans that will have to be impaired, is now terminal. As for the far trickier, and now answered, question where the money to withstand this upcoming systemic shock comes from, just read this expose on the Fed's use of QE2 reserves.

From Bloomberg:

Weidmann’s depiction of a default as a liveable outcome contrasts with warnings from fellow ECB officials Lorenzo Bini Smaghi and Christian Noyer, as well as European Union Economic and Monetary Affairs Commissioner Olli Rehn, who described it as a “Lehman Brothers catastrophe” last week.
 
European officials are racing to find a plan to stem Greece’s debt crisis by June 24 while sharing the cost of a new rescue with bondholders. German Finance Minister Wolfgang Schaeuble is calling for Greek bondholders to extend the maturities of their debt by seven years, a move ECB officials say is akin to a default.

A bailout for Greece must include “voluntary” investor participation and meet the approval of central bankers, Luxembourg’s Jean-Claude Juncker said yesterday in an effort to narrow the dispute.
 
“We cannot push through private investor participation without, or against, the ECB,” Juncker said on Radio Berlin- Brandenburg. “A default would mean the ECB would have to end its accompanying programs. A default would mean we have reached the end of the line.”

Naturally, those German banks that did not have enough time to soak up Federal Reserve indulgences, are nervous:

Forcing losses on creditors may also hurt confidence, Commerzbank AG Chief Executive Officer Martin Blessing said in an interview published today in Welt am Sonntag. Investors had been told they wouldn’t need to join any efforts before 2013, and reneging on that pledge would “not exactly help build trust in the markets,” Blessing said, according to the newspaper.

Alas poor Angela, who is now caught between her electorate which will have her scalp should Germany proceed with some impractical Greek bailout, her bankers, which now are convinced they have enough cash to face principal writedowns, and the ECB and the europarliament which realize that a Greek bankruptcy is far from a contained exercise in Lehmanism, has to pick her words very carefully:

“We cannot accept an uncontrolled bankruptcy of a country,” German Chancellor Angela Merkel said yesterday in her weekly video message. Such an event may endanger the recovery of Germany’s economy, she said.

As usual, with a healthy dose of grandstanding, posturing and jawboning over the weekend, we expect the delayed reaction in the gravitational pull on the EURUSD to continue with full force in 5 hours.

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buzzsaw99's picture

such bullshit. if the piigs defaulted and the eurobanks went tits up the euro would strengthen, not weaken. It is the criminal banks that debauch the currency.

http://www.youtube.com/watch?v=sr0gNJ090JA&feature=related

Ahmeexnal's picture

No, the euro will implode to zero. That is a fact.

But they need to keep the sheeple from bank runs before that happens.

This is the confirmation many of us needed. Their assurance that the euro will withstand a greek default is diametrically opposed from truth.

While the question of default was still in the air, TPTB warned the world about a total collapse if the greeks didn't honor their debt. When the scaremongers failed at their attempt they had to change their, now that everyone and their pet rock knows Greece WILL default.

Bank runs will probably comence next week. The MSM will not report the first occurences...until it gets really ugly. By then, it will be too late.

This makes sense with the topic of this post. The eurobanks (owned by european royalty)  are keeping those dollars since the euro will be worthless before september. The euroserfs have no clue as to what they have themselves been deluded into.

buzzsaw99's picture

So your argument is bailouts make for a stronger euro, defaults make it weaker? color me dubious on that theory.

ratso's picture

You are right ot be dubious.  The ECB lacks the centralized power to act in defense of the Euro and the economy of Europe should there be a "Lehman" type crisis in Europe.  The EU also doesn't have the flexibility to act decisively - too many governments have to many diverse interests to reach a timely conclusion about how to intervene.

Consequently, if the Greek bonds default, there will be a need for 1.5 billion Euros to shore up the banks because the Portuguese, Irish and Spanish bonds will follow them into default.

This will in turn cause the economy of Europe to seize without having the ability to act decisively the way the Fed and the Treasury intervened in 2008.  Credit will disappear. Libor will go thru the roof and the mortgage market will go into severe contraction.  Normal business lines of credit will also disappear.  It will cost another 1.5 trillion Euro injection into the economy to jump start it.  However, it might cost more because the individual countries might never agree on a solution resulting a the dissolution of the Euro system.

If the Euro is going to survive, the EU has to buy the Greek bonds and take the "haircut". itself.  The banks can share the "haircut" but they can't eat the whole thing without precipitating a major Euro crisis in all the weak bonds. Distributing this loss over the EU will reduce the pain but inflame the better functioning countries.  The only question now is when will this be proposed.  After that, Greece will be politely asked to leave the Eurozone

Arius's picture

i suppose problem solved then...ehhhh

would you care to elaborate how will you solve the irish, spanish, italian problems etc...

how about the US debt problems.....

or just ask politely everyone to leave the planet?? lol....

greece did not invent it, either is the only problem....it just happened to be the first one to go....

ratso's picture

No, Greece is different from Ireland, Portugal and Spain

Greece lied their way into the Eurozone with the help of Goldman Sachs.  They hid the extent of their financial mess before being admitted and then bought time by issuing bonds that they had no idea about how they would ever pay back.  They gave government employees huge pension and health benefit packages that could never have afforded before the bond issuance.  They collect less then 15% of the taxes they should.  Egregious tax cheating in Greece is a way of life with no consequences.  

They simply don't function with the same work ethics and financial ethics as the rest of the EEurozone.  Ireland, Portugal and Spain do by and large although Portugal has functioned until recently as if they think they should be supported by the rest of the Eurozone.

Ahmeexnal's picture

So basically what you are saying is that Greeks love freedom and the rest of the Eurozone is happy paying taxes to TPTB, and being serfs?

Work ethics? You mean accepting the mantra that "work shall set you free" as the rest of the eurozone has?

 

 

Arius's picture

get a break pal...not sure how much you travel but people are not much different anywhere they live....greeks have been a bit longer than the rest under the sun, if you go down the road....

dont get me started on the lies....where do you live?  i mean you live in this planet correct?

greeks lied...man, where do you get your info from? newspapers? you really believe the greeks outsmarted all of these german, french and new york banks? dont you know Goldman Sachs wrote all of those derivatives to make it possible...its all planned...there are no suprises and lies....there are road maps for the next 30 years...

 

 

edotabin's picture

greeks lied: hogwash! I have written many times before that you didn't need to be an insider to know how bad things were in Greece. Deficits were horrible, the country produces nothing, the retirement age is exceptionally low, the number of people sucking the coffers dry is huge. Many other examples can prove that a tiny bit of digging would reveal the financial disaster called Greece. This was offset by constant devaluations of the drachma and 25% interest rates. What else does one need to know ? 25% interest rates right before introduction of the Euro! You have to be einstein to figure this out?

They all colluded in the lie. This is why GPAP placed that bald idiot to be in charge of Greece's return to the markets. That bald dude was the guy that designed the whole Goldman scam! Leo K had spoken to that lying sack of deficits.... what was his name?

The Greeks usually refer to such situations as "They asked the wolf to guard the sheep"

swissinv's picture

what Ratso says is 100% correct

buzzsaw99's picture

the bailouts have been great for the USD [/sarcasm]

http://finance.yahoo.com/echarts?s=UUP+Interactive#symbol=UUP;range=5y

If Europe has learned anything from the usa and japan it is that lying about bad assets on bank balance sheets is good, taking them onto the public balance sheet in broad daylight equals bad. It will be nothing but lies from here on out and the euro is grossly overvalued imo.

Ahmeexnal's picture

Default is FREEDOM for Greece, bad for euro-banksters. It means game over for the NWO project.

Bailout is death for Greece, good for looting euro-kleptocrats. It means NWO can kick the can for a few more months, while at the same time bringing the greek population to slave status.  It means the imposition of the chaste system in europe (to be extended to the rest of the world).

 

 

Spastica Rex's picture

Nobody gets to have sex anymore?

Ahmeexnal's picture

I guess it depends on your definition of sex. If the euro-kleptocrats get their way, it means greek knees -and pieholes- will hurt badly.

QQQBall's picture

 

hahahhahaha!+1

caste vs chaste. nice!

kito's picture

thank the good Lord for our Grammar Patrol Officer S. Rex

Cdad's picture

But they need to keep the sheeple from bank runs before that happens.

This is profoundly true, as is the case for all the sheeple mezmorizing talk about how this will be fine and that will be fine.  The attempt is to create a controlled collapse...so that certain very important criminal syndicate banks can profit from each step of the decline.

Short everything US to the 200 day sma on the S&P, short the Euro, get long the dollar...and buy VIX calls on any dip there.  We have all been here before!  The title wave of bullshit broke a week ago Wednesday.  On that day, you can clearly see that all those bullish just about anything threw in the towel [S&P daily chart].  Look for all the market darlings [the generals of the HFT squads] to be shot on the front end of the upcoming week...also a necessary event before any meaningful resumption of upward momentum can resume...if any can...which I seriously doubt.

It is time to ignore every last banker statement until such time as Ben Bernanke announces that he has the will to continue the money printing bailout scheme to its next level.  And for those hoping for that lifesaver, you had better hope he is not impeached and removed from his station.  Until QE3 is announced, all miracle, fractal algo lifts will be met with heavy selling...which was the case on Friday when the latest banker "news" was announced, bounced, and sold back into oblivion.



oogs66's picture

+1. Wait til the hft's figure they can make most money by selling first and buying back later in addition to collecting subsidies from the exchanges

Roger Knights's picture

"Short everything US to the 200 day sma on the S&P, short the Euro, get long the dollar...and buy VIX calls on any dip there."

Agreed. A drop in the euro will drag the S&P down.

TK7936's picture

No, Greece just isnt enough for your doomsday scenario. Argentinia had more effect than a Greek default would ever have.

ISEEIT's picture

No, the euro will not implode to zero. It will likely 'implode' to parity. The relationship is relative. Remember my good man  that it is a 'pairing', a 'relastionship'.

Zero won't happen because the eur will continue to be measured against usd.

I understand that you already know this...I'm just saying.

The 'pair' will become equally worth-less.

Fiat is to be earned in the race to the bottom, and smart bets are that the eur will win that contest.

Reptil's picture

Normally, I'd say yes. But since there's no more "other reserves" this is the back of the line for the whole system.

Short of a massive loosening round and inflation, which will not happen, they're stuck. This whole thing is just posturing IMO.

MsCreant's picture

Tyler's lead post on today's blog. QE3. America is the new/old AIG. They suck us ($), we suck them (buy our treasuries). The check kiting continues and keeps things looking like they are running. God forbid someone had to stop the system and do a real accounting of anything. It is the motion that maintains the illusion that anything is working; intersecting derrivatives, loans, and guarantees keep us all distracted from the fact the system is broken.

Reptil's picture

+1

I do believe though, they've run up to a wall now.

As Merkel said on the G20 last fall, in Toronto, germans don't buy that story (poor Angela haha).

Differences: 1. strong middle class with economic power - savers instead of debtors 2. they already went shopping for gold last year may. and will do so again. they have NO emotional ties with euros, like americans have with dollars 3. Higher average level of education 4. strong sense of nationality

PY-129-20's picture

Yes, you're right about that, Reptil. We don't buy that story, but what can we do?

Just look at our parties - does it really matter if I vote for Greens, SPD, CDU or FDP? No, in fact, I think  we've already those parties elected that actually should care about being conservative or handing out money carefully.

But instead - what are they doing? They are handing it out as quick as possible. It doesn't matter to them or to anybody else in the Bundestag. They are looting the young German generation that is expected to reduce the national debt. They break our constitution for bailing out the PIIGS. It's a crime. I've said this a hundred times. It drives me crazy - listen, I am not an anti-european, in fact, I've always found the European idea great, but when they started this EUR project and took everybody in that could raise a hand, I instantly knew they would fuck up the whole system.

It is somewhat also ironic that their actions will destroy the whole European idea, instead of promoting it. And that makes me sad. Not that there weren't flaws in the system before, but at least it was great step forward after centuries of wars...

But what will happen afterwards? Will the be a new kind of EU? A more democratic EU instead of this lobbyist parading club of old politicians and bureaucrats?

I don't think so. I think people will abandon the whole European idea...

 

Reptil's picture

+1 and that would be a defeat and a shame, and we have the apparatchiks to blame.

You'll see here if we think alike: http://www.zerohedge.com/article/unwind-begins-eurogroup-president-junck...

Roger Knights's picture

"It is the motion that maintains the illusion that anything is working."

Agreed Here's a comment I read today on SA:

"This thing either goes up or it goes down."

ISEEIT's picture

I love being a fundamentalist! I'm covering my (fake) short from 1.413.

Let it roll mutherfuckers.

Just because the average asshat heads south as I go east is reason enough for me. Play till you can't anymore shitheads.

I'm still covering and I will win.

Reality is a Bitch (or is it that YOU are realities bitch?)

 

I love ZH and the euro is set to fall,hard.

Fucking posures from the start.

Let's pretend we are married eh?

Turns out to be a bit more complicated than that you stupid shit's.

Who would ever have guessed????????????????????????????????????

oogs66's picture

they are setting people up to deal with the default.  they realize it is going to happen eventually and that the governments will have less ability to deal with it as they take on all the debt, so they are preparing to have Greece default now and keep the problem at the bank level, which they can then deal with.

 

Zerohedge was first to spot that this was getting to the point of needing restructuring back in early May.  Isn't this what most people on ZH have been hoping for?  An admittal of defeat of kicking the can and trying to work through it?

 

And by now, European banks should be able to deal with this.

 

Portugal is not as bad as Greece and may actually be salvageable.

Reptil's picture

Eeehmm the ECB is not "bank level". The ECB is massively overleveraged.

I see one tiny way out, they could appreciate the price of gold in euros, since the ECB holds gold as well. That will only work one time though... perhaps they'll pull the gold out of the ECB, and then do a greek default.

neh... My guess is, they'll posture some more, and then try to "make it through" the greek default eehm sorry debt restructuring.

http://www.ecb.int/stats/external/reserves/html/assets_8.812.E.en.html

oogs66's picture

the ECB has a capital call on the governments of the EU.  the fact that ECB was buying bonds in the secondary market was effectively a doubling down of the amount the EU was providing Greece.  Certainly in hindsight, not a good idea, but at the time, as countries struggled to approve the bailout, why were they allowing the ECB provide an even larger bailout?  and one that wasn't even going directly to the country that needed the money?  the ecb took on more greek risk than the governments did through the formal bailout, and they took on the risk by buying debt in the open market, not supplying Greece with any new cash

Reptil's picture

Up till one week ago the prevailing attitude here was that it still was a liquidity crisis. (Min. de Jager of the Netherlands said "whatever happens Greece needs more euros." and "there'll be a budget gap early 2012, so we have to act now to prevent this") And there was a genuine concern the banking system would collapse. (insert curseword here) So, then you know why.... they're very stupid like De Jager (as a lot of the current crop of politicians) or evil SOBs like Maxime Verhagen, and generally badly informed (i.o.w. don't believe in "conspiracy theories" and had the bankers as their advisors (because they're the "experts" that's why). This will cost them and us dearly.

With a clear conscience I'll enjoy the spectacle of squirming morons in the coming weeks, and perhaps a sudden dambreak and run on a bank followed by a run towards swiss francs first and from there gold, a glass of champagne in one hand and a nice spliff in the other.

Perhaps they'll stretch the elastic band a little further... even more fun in the summer. july is payback month.

http://www.youtube.com/watch?v=KBz4eK22-Zk

 

dracos_ghost's picture

+1000 on Bootsie Collins.

I agree with you, the music has stopped and their are no chairs and these self-anointed types are mentally masturbating while they scramble for cover.

It's as if they want a default to blame someone other than their own arrogance and stupidity.

 

M.B. Drapier's picture

the ECB has a capital call on the governments of the EU.

But that's just the thing - it doesn't!

richard in norway's picture

reggie predicted it last year

Cleanclog's picture

Not bad news for Greeks.  Good news.  So default already!  They're gonna let you out of the Euro, you'll control your own destiny with a currency that other countries aren't in charge of, and you can return to fiat, which means nothing, which means you can just keep spending without consequence like the rest of the world until . . . poof!  The survivors will have food, water, some form of shelter, a method of protection, and something of value that is portable enough to barter/trade with.  Survivors include individuals, communities, and companies appropriately ready.  

Contingency planning has rarely been more important.  It is not about the sexy car or McMansion folks.

sunnydays's picture

sounds like it is going to be an interesting week in FX this coming week.  Should be a fund week will be interesting what metals do this week.

johngaltfla's picture

I'll bet that the Bundesbank isn't speaking for France, Belgium, Austria or the CDS and bondholders of the other PIIGS....

Going Loco's picture

If Greece defaults and "gets away with it" the Irish will be tempted to do the same. What then happens to the British banks?

oogs66's picture

how are the Greeks "getting away with it"?  If (when) Greece defaults then the lenders should do everything they can to recover as much money as possible.  Sadly, for the lenders, that is harder to do with a sovereing borrower than a corporate borrower.  Blame the lenders, not the borrowers!

boiltherich's picture

Just like the obvious case of the Greeks the Irish and the Portuguese will eventually default, their debts are just too large, ditto Spain by the way, they could plow half their collective GDP's into debt service and still take 200 years to fully repay principal because 99.99% will go to interest as it is now.  The only way for it not to happen would be a massive devaluation and injection of cash into those economies which just isn't in the cards.  The taxpayers and consumers of these nations were had, especially Ireland which had almost no external debt as recently as 2007, and which have no consumer protection for discharge of mortgage debt in bankruptcy, as well as the fact that nearly all mortgages are variable rate.

The Euro might be able to withstand the default of Greece, but also of Ireland?  Portugal?  Spain?  And if the contagion gets that far what will the Euro still be really?  It will be a Deutshe Mark in all but name. 

zaknick's picture

It is in China's and the Euro banksters' interest that the FRN be the one to bite the bullet. Can you imagine how they must be living their chops at the thought of being able to replace the US treasury market with Eurobonds? Sweet little Ponzi, no?

Reptil's picture

eehmm euro-dollar banks is one team

G-R-U-N-T's picture

Greece produces little, if anything of value, therefore there is no way in hell this will ever be paid back. Why continue loaning money to a country when they know they can't pay it back?

How much of the last bailout and this potenial bailout is U.S. money?

 

bob_dabolina's picture

 Why continue loaning money to a country when they know they can't pay it back?

http://en.wikipedia.org/wiki/Indentured_servant

margaris's picture

yep, exactly.

to learn (in a playful way) what an indentured servant is, you might want to check the old pc game 'sid meier's colonization'

have fun

THE DORK OF CORK's picture

 

Leverage is expensive

please google :

Central government debt; total (% of GDP) in Euro area

in the trading economics website
Back in 1996 as EMU was getting started it was 72/73% of GDP
in 2008 it was 51 /52 %
Bank credit filled this hole and created a massive malinvestment nightmare

Beancounter's picture

I see Greek islands for sale in the future at 3 drachmas on the $1.  

Anybody want to start a sovereign asset buyout fund?