This page has been archived and commenting is disabled.
Another Surprising Conversation With "Athens"
I wrote about a conversation I had with a Greeks shipper living in Athens on May 15. In that article I conveyed the thoughts of my friend who was convinced that the June 17 Greek elections would produce a different result than the May 26 effort to form a government. At the time he said:
When the next election comes, Greeks will not vote in anger and they will not vote for the idiots on the fringes. The centrist parties will rebound. A National Salvation Government will be formed.
He was proven correct and I called him this morning to get his thoughts. It went like this:
BK:
Good call on the election. What happens next?
Athens:
New Democracy (ND) and PASOK (P) will form a new government. Of significance is that another socialist party, The Democratic Left (DL), will join in with ND & P. This makes the coalition more credible as Fotis Kourelis runs DL. Fotis is well liked and respected in Greece. Syriza and the Communist parties will form the opposition. I have no idea what the far right parties will do.
BK:
Can this work?
Athens:
For a time, maybe. The DL party is in favor of rewriting the deal reached with Germany. I think that talk of this will happen in the coming days.
BK:
Are you pleased with the voting results?
Athens:
It's not possible to be pleased with anything that happens in Greece these days. I have taken my family to London for a few months. We will go the Olympics and try not to think about life in Athens. I fear that social unrest is going to spring up again. This is the real reason I took my family out of the country.
BK:
That is a shocking statement. What will bring back the demonstrations?
Athens:
The country is flat broke. In a few weeks the government will not be able to pay workers. When this happens, the strikes will resume.
BK:
What are the chances of another bailout package from Brussels?
Athens:
Screw Brussels. The decision on more aid for Greece comes from Berlin. I think the Germans will say, “No.”
BK:
So you think that Greece will be forced out of the Euro?
Athens: Yes, this is a possibility. Greece is not competitive at all. It is 40% less competitive than even Spain. So ultimately some form of devaluation must happen.
BK:
What’s your sense of timing for Grexit?
Athens:
Where will the money come from that Greece needs to stay alive? I tell you again that it must come from Germany. We may hear that Germany is willing to renegotiate parts of the bailout, but significant new money from Germany is not in the cards. There will be another crisis in less than three-months.
BK:
If Greece goes, does Spain follow? What about Italy?
Athens:
If Greece leaves the Euro there will be tremendous hardships for all of the countries involved. Spain would be very hard hit, Italy as well. The economies and commercial banks of the southern European countries would implode. The costs would be staggering. These facts are understood, so I think they will not let the Euro collapse.
BK:
But what is Plan B?
Athens:
Simple. Germany will leave the Euro. It will reestablish the old Deutche Mark (DM). The Euro, without Germany in it, would fall against all currencies. The necessary adjustments to restore competitiveness will have been achieved. The DM will be very strong against the Euro. This will hurt Germany, but not for long. In the end this is the only solution that I can see.
BK:
What about France?
Athens:
The most important election this weekend for Europe was not in Greece. It was in France. The election results were very clear. France is going in a very different direction than Germany. The cooperation between France and Germany over the past few years is finished.
BK: Wow! So what do you do? Do you sell the Euro and buy dollars?
Athens:
I already own dollars. I don’t like them either. Recently I have been converting Euro holdings into German corporate paper that pays in DM if the Euro is no longer the official currency of Germany.
++
Notes:
The idea that it is Germany that leaves the Euro is not new, but I have always considered it to be far fetched. Not any longer. This fellow has been spot on regarding developments in Greece. He is well connected in Germany. That he is putting money on the table to back up his views is important to me.
The EUR rate against the major crosses this morning does not reflect the views of my friend. The current EURUSD 1.2570 rate reflects the market thinking that there is no immediate crisis. It certainly is not a price that contemplates a Euro without Germany. Should “Athens” thinking on the outcome gain some traction, then the Euro is headed much lower.
The Bonds that have DM protection clauses are new to me. The following link is to a prospective of the securities issued by VW on June 12, 2012. (Link - PDF) The language regarding “Successor Currency” is here:
References herein to a "Specified Currency" shall include any successor currency provided for by the laws in force in the jurisdiction where the Specified Currency is issued or pursuant to intergovernmental agreement or treaty (a "Successor Currency") to the extent that payment in the predecessor currency is no longer a legal means of payment by the Issuer on the Notes.
A number of “DM protected” bonds have been issued in the last month. If someone has a full list, I would appreciate it. The timing of this issuance is interesting. I understand the bonds were lapped up by the market.
I’m tempted to short the EURUSD on this information. But FX markets are not at all predictable, and there is no assurance that things go in the way this article suggests. One thing that I am pretty sure of is that volatility in FX markets is going to take a very big leap.
Seat belts on. Impact imminent.
H/T: K
.
»
- advertisements -
This fellow is well off. A percentage of his nut has always been in gold.
If one has a "nut" then he would be nuts not to have some of the nut in gold. For Europeans that has always been the case.
Bruce, you are listening to a Greek with one foot in London. His views on Greece are those of an insider's. His view's on Germany are those of a Financial Times reader. Talk to some Germans.
-----
Yup, gold never lost it's shine, in Europe.
I would love to talk with some Germans. Maybe they can convince me that the proper path for Germany is to write a blank check for the rest of the EU (now including France).
Who is it that has not made a mistake? There is nothing to do but try to make it right and learn from the lesson. There were many in Germany in 1999 who said that the Euro experiment would be a failure. They are now being proven right. I say that Europe should recognize the mistakes of the past and do the best to put all of Europe on a stronger footing.
Germany fell in love with, and married Spain. It worked for a decade or so. But the marriage did not last. In the end there were "irreconcilable differences" that could not be resolved. Divorce is always expensive. (trust me, I know). So it will be for Germany.
Bkrasting@gmail.com
I don't dislike Europeans but this silly oligarch/EUSSR propaganda that was fed to the Europeans about we are one big family etc etc. They are not the same People. The hatreds have gone on for hundreds of years. The whole euro and EUSSR s*it its to take away more freedom. Just like the US including flooding western countries with illegals to overwhelm the taxpayers. Assisted by the vampire squid as usual.
Does he pay his taxes?
Oh, that explains why I am called a nut.
I am extra crunchy peanut butter then.
Thanks for the response Bruce. Much appreciated.
A savings / deposit account at any solvent German Bank would do (lkie Sparkasse, Volksbank) they are insured to at least €100 000 per account, or a government money market instrument called "tagesgeld des bundes" - which has unlimited deposit protection. Precious metals are for insurance but unsuitable for day- to day transactions.
You seem to forget the pending 90% haircut on german bank savings, LV (life insurance) and the like. Over a limit of ca. 1000 to 3000 euros nicely converted into DM2, a whopping 90% will be lost. This will be a money reform (like in 1948, from RM to DM), not a money swap (DM to €). Brace for travel and capital controlls for a few weeks.
I expect that foreign-owned bank deposits will be paid back in euros, not DM. Only German nationals/residents will get the DM.
"solvent" German bank-good one-they are holding as much shitty paper as any TBTF in US
The Sparkassen are not banks like the Deutsche Bank, and have different statutes. As a rule they only loan to local business and up to now there have been no excesses in the real estate sector like in Spain, one reason being that interest on mortgage loans for owner- occupied homes is not tax deductible. Nothing is certain in this day and age, but there is the deposit insurance. If SHTF what will corporate paper be worth?
.
and what would the conversion rates be, and how and when would they be determined?
If they set the DM at a reasonable market value relative to the euro from the get-go, and the euro had already tumbled in anticipation people could be taking a big hit even if they were paid in DM based on the value of their euro deposits/investments.
What you said.
No guarantee if he ends up getting paid in DM that they won't be devalued as much as any other fiat, just a stronger chance they won't get whacked as hard.
This supposedly smart guy is making a very dumb move by not diversifying at least part of his holdings into physical held outside the system.
He is, see above.