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Germany Walks Away From Greece
Wolf Richter www.testosteronepit.com
Preparing for Greece’s exit from the Eurozone has been picking up momentum and has reached critical mass—on the way to a fait accompli. Still unspeakable in public discussion last year, it has become a routine topic at all levels of government. While everyone at the very top still hues to the line that Greece should stay in the Eurozone, out of the other side of the mouth comes the but—especially since the focus is on Spain, the real problem, the one problem that the Eurozone will have trouble digesting.
Even if it could digest bailing out Spain or losing Spain, the next step up, Italy, due to its size, is beyond bailout and would cause the Eurozone to fracture into its component pieces—unless the ECB decides against all treaty limitations and stiff German opposition to monetize directly and without qualms any sovereign debt that needs to be monetized. And even that would tear up the Eurozone because Germany and a handful of other countries would refuse to be tied to that kind of loosey-goosey management of their currency.
There are political realities in Germany, where Chancellor Angela Merkel, slipping in the polls, is trying to decipher the scribbles on the wall. Her people, who vacation in Greece more than any other people, have handed her some clues: 60% said they wanted Greece out of the Eurozone, a jump from November when an already shocking 49% had wanted them out, according to a ZDF Politbarometer poll released Friday. Only 31% wanted Greece to remain in the Eurozone, down from 41% in November, with 9% not giving a hoot.
And Germans made short shrift of French President François Hollande’s favorite debt crisis panacea that he’d demanded from day one of his campaign, re-demanded at the G-8 in Chicago, and slammed on the table at the EU summit in Brussels earlier this week: Eurobonds. An astounding 79% were against them, and only 14% were for them.
Apparently, Germans have understood how insidious—insidious for Germans, but a great deal for debt-sinner countries—these bonds would be. They'd spread the risk of each country to all countries, but the last man standing, possibly Germany, would end up having to bear them all. They'd cut the borrowing costs for Greece (oops, scratch that), Spain, Italy, and a slew of other Eurozone countries but raise the costs for Germany—now zero on shorter term debt, and negative when adjusted for inflation. It didn't help that Bundesbank President Jens Weidmann vilified them in his quiet manner every chance he got, most recently when he said, "The belief that Eurobonds could solve the current crisis is an illusion."
But the next big battle may actually revolve around keeping Germany in the Eurozone: 50% of the respondents saw more disadvantages than advantages, up from 43% in February; only 45% saw more advantages, down from 51% in February. The more costs and risks rise for Germany, the more this number is going to skew away from the euro. A scary trend for Eurozone bailout freaks. And suddenly Germans woke up to the headline, "Greeks Pay less Taxes"—taxes being a sore subject for Germans who pay out of their noses to get their welfare-state budget into balance. For a debacle without equal, read.... The Confiscation Conundrum in Europe.
"The notoriously tax-sinning Greeks paid their government even less than before," the article began unnervingly. Turns out, Reuters had gotten two anonymous “senior” finance ministry officials to talk: Greeks were refusing to pay their taxes in euros in anticipation that they could soon pay them in drachmas, albeit with minor penalties. And lacking a government, they wanted to wait for the outcome of the next election on June 17, which hopefully would produce a government, any government. And so tax revenues in May were on track to drop 10%. Outside of Athens and Thessaloniki, tax revenues would fall between 15% and 30%. First capital flight then quiet bank runs, and now a refusal to pay taxes to a government they don’t have, in a currency they might not have much longer.... The Greeks are preparing for a reversion to the drachma, and they're trying, very understandably, and very smartly, to protect whatever they can—which, of course, simply speeds up the process of reverting to the drachma.
And when Germans were through with this article, the same Friday morning, they’re hit by the headline, “How the Greek Elite Stuff their Pockets,” an article about corruption in Greece. And so, at a conference in Berlin, Jürgen Fitschen, designated Co-Chairman of the gargantuan Deutsche Bank, said that there is no single solution for the euro debt crisis in part because the situation in Greece is so unique. Then he let it slip that Greece was a "failed state."
Thus, Europe has re-descended into rumor hell—where good rumors are head fakes that cause markets to rally, and where bad rumors, though passionately denied by all sides, turn out to be true. Read.... Rumors, Denials, and Visions of Chaos in the Eurozone.
And here is an awesome video by investment manager and author of Currency Wars, James Rickards—particularly in light of the euro crisis: Currency Wars – The Making of the next Global Crisis (video).
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You are, quite simply, wrong.
The EU and the Eurozone will implode before the end of 2013.
Hopefully right after you have committed 75% of your net assets on the wrong side of the trade.
this long weekend has been already foreseen. It is the next two eeks into June 15 that will be choppy. The recent JPM and UBS forecasts reviewed here on ZH point to potential 50% stock market corrections, due to Greece !!! Greece is already dead in the water.
The stock / equity bubble will leak due to value adjustments, and currency hedges, not due to Greece. CBs and helpers will slow the leak, even build in tiny bounces for the bubbles. Crashes are out, we are already in a (as yet) controlled slide.
Golden October, wait for it.
at this point, a 50% correction is the equivalent TEOTWAWKI
a recovery from that would be the equivalent to people starting to walk on water
There was more than a 50% correction in the DOW in 08 and it's still business as usual. I don't think Tebow will be necessary.
Ya what's up with CNBC lately? Next they'll be announcing that the Government of the World is meeting at Bilderberg this weekend to discuss how to kill your children. Have a Happy Holidays. See you next week.
Everyone calling "game over" had better put in a stock of Depends........no one is going down easy.
Only the weak need diapers.
The rest of us have iron nerve and belly up to big steak and taters washed down with ale to prepare for the battle.
"Only the weak need diapers.
The rest of us have iron nerve and belly up to big steak and taters washed down with ale to prepare for the battle."
I'll be watching while the e-coli work their magic...
I think they just need to face facts. Too many of these countries are in above their heads and cannot repay their debts.
If their debts weren't so far beyond any reasonable means to pay them back, they could go the austerity route. Cut back on government spending and raising taxes -- enough to overcome the downturn that would necessarily cause in their economy, that it would exceed the loss in revenue and additional expenses from the downturn enough to still get their deficets and debts back in line.
But it's beyond that.
They're going to be forced to default one way or another.
Printing Eurobonds would be a de facto default. They would push the loss off on the savers, particularly the most thrifty of their citizens.
Or they could do something along the lines of allowing individuals who have gotten in too far over their heads, and allow them to declare bankruptcy. Or in this case to come up with some sort of agreement with regards to haircuts for those who loaned them the money.
The second way seems far more fair to me. The people who gave them the loans took the risks and would have reaped the benefits. They should also take the losses if those loans can't be repaid.
Why hammer the folks who've saved up a nest egg for retirement or whatever, who never loaned them the money in the first place? Sure, it's easier to take the money from them by stealth, and they won't have the teams of lawyers and lobbyists protecting them like the big boys will, but if we go by what's fair and just, the losses should really be borne by those who made the loans.
I don't think it's necessarily all their fault, of course. The borrowers may well have squandered the money, and perhaps in some instances did so with gusto. But I think the major culprit in all of this worldwide disaster is the central banking system, in particular the Federal Reserve, which fed the boom (no pun intended), and blew the bubbles which exploded in the world's face. But the bottom line is that it was the bondholders who made the bets, and the bondholders should take the losses... and hold the central banksters responsible.
The debtor nations, should also bear much of the burden, and take austerity measures that won't be inhumane.
"It was the bond holders who made the bets,"
That is the central banks!
you are cheating the upticks...go to work for a central bank immediately!
So let them shoulder any risk those bets have engendered.
Why should they collect the interest and principal if things go as planned, and all of the people suffer the deleterious consequences should their bets go south, so to speak?
I don't think you realize what default means.
Greece got the PSI through. There are no remaning private debt holders of any significance.
The money owed now is all owed to the EU, the IMF and the ECB. It is THEY who would be stiffed by a default.
And as has been true from day one, a country that imports all of its oil can never really default. The EU could just blockade the imports unless a surcharge per barrel is paid.
Greece will have to pay. If it reduces them to dumpster diving, it doesn't matter. Oil is air. Without it, you die. They will pay. They can't default.
The EU blockading imports....are you serious?
You are forgetting to account for Greece's friends in the North for the last 1300 years or so. The Russian Orthodox Church was established by Greek Orthodox priests and each side not only remembers but remembers with a great deal of passion (even the non-religious types). Starving the Greeks will not be acceptable to the Russians and trying to do so would be fatal to NATO and possibly the EU as well (they get their gas from Russia) because such an outrage as this would really piss the Russians off.
You are forgetting to account for Greece's friends in the North for the last 1300 years or so. The Russian Orthodox Church was established by Greek Orthodox priests and each side not only remembers but remembers with a great deal of passion (even the non-religious types). Starving the Greeks will not be acceptable to the Russians and trying to do so would be fatal to NATO and possibly the EU as well (they get their gas from Russia) because such an outrage as this would really piss the Russians off.
Whips out a Paper... and a crayon...
Scribbles***
I.O.U. 99 year term.
Eh wot?
A blockade is an act of war, however. Would the EU, IMF & ECB really try to do such a thing to try and squeeze more money out of a bankrupt partner who can't possibly repay them in full? Could they even if they wanted to? The EU, IMF and ECB have no navy, though most of their members do.
The EU, IMF and ECB are big boys. They should be able to handle the risk of default or taking haircuts on loans they freely and willingly made. Individuals sometimes have to do so. Companies sometimes have to do so. Hedge funds, ETFs and mutual funds sometimes have to do so. Why not the big boys who should have the best and brightest accountants, economists and financiers at their disposal be able to handle such risks rather than resorting to enslaving a people at the point of a gun?
Maybe taking their lumps like the big boys they are would encourage them to be a little more responsible with their money. Or better yet, disband them and let money be money without any sort of governmental intervention and their fiat, debt based monetary system which in fact is the root of the worldwide financial crisis.
Greece is in NATO, right? A blockade of a NATO member by other members would effectively end that alliance and put us on the path towards some serious WW3 action.
Chicken.
Game over man. Game over.
http://www.youtube.com/watch?v=dsx2vdn7gpY
Great article.
Can I ask a stupid question.
Last summer was all about Italy. Yeilds were over 7% and well above Spains.
Now all I hear about is Spain. Its yeilds are 50-75 bps higher then Italys. No one talks of Italy being the next domino anymore. Its always Spain.
What happened? Did things get better in Italy or way worse in Spain? Was the market just wrong last summer or did the LTRO help italy more then spain. Or is it that the bond vigilantes failed to crack italy and decided spain was an easier target.
ssssshhhhhh!!!
You're ruining TOMORROWS headlines.
My guess it's about vigilantes. Not to downplay the reality of the problems we hear about on ZH all the time but reality seldom seems to matter until 'someone' decides it should. Italy had more political issues last year so it was an easier target. This year the bank issues make Spain the best target to cut out of the herd. Who matters less than creating precipitating a crisis. Money and power can be made in the collapse of the divergence between manipulated prices and reality.
I've read in some articles that the bond vigilantes are just bond market investors who begin backing away from a particular country, or company or whatever, and that the increase in yields is just a collective market decision that those bonds are becoming more risky.
It sounds though like many people consider it a deliberate attack upon a country or company in an effort to drive down the price for their own gain.
I'd appreciate it if anyone could explain the nuts and bolts of how the process works, and maybe an example or two of where that was carried out, and/or a link to a good article or two or three.
Thanks.
"I've read in some articles that the bond vigilantes are just bond market investors who begin backing away from a particular country, or company or whatever, and that the increase in yields is just a collective market decision that those bonds are becoming more risky."
You're under the mistaken impression that investors have the right to say 'I'll pass' if the speculative assetts are sovereign bonds.
Evil do-ers, all of them....
Higher yields are reflective of bids looking to get hit ... it's more technically correct to say that the yields are higher not so much because the bonds are riskier (which they are) but because the risk that is there is not effectively priced in to the desired ask. Sovereigns always think their shit doesn't stink and that they should get to borrow at the "risk-free" side of the spectrum.
Truth be told, my money is probably safer in EM Sovereign debt than it would ever be in Greek, Spanish, or Italian sovereign debt.
Thanks for the reply. I'm on board with all of that, but it still seems to be a quite different viewpoint than that expressed by some, that the vigilantes are like a pack of jackals looking for a weak animal to attack and pull out of the herd.
The impression I get is that they're not just talking about bond holders, through the free market mechanisms repricing the bonds upon reevaluation of risk, but rather that they can gang up on a country and deliberately bring it down for their own benefit.
An example, I believe, would be the allegations that Soros "broke the bank of England" and profited handsomely by doing so. The political leaders certainly rail against "the speculators" who are attacking them and need to be reigned in to keep them from deliberately causing unnecessary harm.
I'm guessing, speculating if you will, that perhaps some hedge funds &/or wealthy investors could perhaps go into some sort of "attack mode" by getting together and shorting the bonds or raising the risk premium through bets in the CDS market causing a panic, or squeezing out the other side causing a jump in interest rates raising the risk that would in turn freak out the markets or cause the rating agencies to downgrade them, in effect making it a self-fulfilling prophecy and causing a downward spiral that they started and also profit from, to the detriment of their hapless target. Is that reasonable/possible?
I know people claim that "the speculators" distort oil prices & other commodities, but from what I can tell that is a relatively temporary phenomenon. The fundamentals will eventually prevail and those betting correctly, and aren't so over leveraged that they can be forced out of the market will prevail. Those who bet wrongly, and distort the market should lose on average, and the market will always trend toward an equilibrium where the fundamentals of supply and demand will prevail in setting the market price. Or so it seems to me.
clubbing together to short a market is market manipluation, only central banks and government treasuries are allowed to do that. :)
Hehe. It cant be the fault of spanish financial irresponsibility and loss of confidence because spain has attempted to conceal debts.
No it is dem evul speculators
Hi Joe, most of the evul speculators are using pension, health and insurance funds - payments from the other working Joes who expect to retire and relax after a life long 15/7 or /6 for the blessed.
A huge part of the paper asset pump comes from this, the problem is these assets are being traded for themselves, unrelated to the productivity or value added services that ought to back those assets.
The speculators are in this sense working for us Joes and Jennys only the base for the assets they trade in are luftnummern - balloons or bubbles.
It's Greece (and Spain and Italy) or Germany, count on it.
The euro is finished.
Nonsense. The Euro is just getting started. Many of the people on this thread do not know Europe or the Europeans. Europeans are masters at dealing with crises and in fact thrive on them. They give their technocrats the opportunity to develop ever more creative ways of solving problems which they enjoy. They give their political leaders a raison d'etre and the pleasure of an endless round of meetings and negotiations to justify their salaries, perks and seriousness of purpose. They give their people a substitute for war to motivate them to engagement and solidatrity. Anybody who thinks we are done with the Eurpean project is in for a suprise. What we are seeing is just another right of passage that permits heroes and villains to emerge. This is a 2500 year story that will continue and long may it do so. It has benefitted the world to a degree hard to imagine.
OH,
It seems to me like they think voting in a "technocrat" that agrees with them will make money magically appear !
Their lifestyle is PROVEN unsustainable, changing politicians doesn't alter that fact.
If Europeans are such masters at dealing with crises, then why have they had so many wars? Watch what happens when the Euro draws to a close and nations start booting out the "foreigners". Both Euopean and non European.
BOT
It has benefitted the world to a degree hard to imagine.
No, it has benefitted bankers to a degree hard to imagine.
Everbody else has been burdened down with debt, or guaranteeing someone else's debt.
Europe got along just fine for hundreds of years without a common currency. Each nation gravitated to their own natural level economically based on their culture.
Germany was strong economically from their culture of innovation production and craftsmanship. Greece was weak economically from their culture of laziness.
Bankers saw an opportunity to make boatloads of money taking wealth from Germany and loaning it to Greece. But they needed a common currency to do it.
That's what a common currency does. Allows bankers to take wealth from productive people and loan it to lazy people, who then have a debt to repay ...to bankers of course, along with interest and fees and other costs.
Fiat currency is HOW bankers steal wealth from productive people and loan it to lazy people, skimming off a cut for themselves.
It's the same reason a fiat curency was started here in America, replacing the original gold & silver redeemable currency. So bankers could steal weath from productive people and loan it to the lazy government and lazy Wall Street banks.
Actually "loan" isn't accurate. Because the wealth will never be returned. And bankers sit there collecting interest and fees out into the future, from wealth they stole from everybody else.
We enjoy your comments MDB. They're entertaining and give people like me opportunities to explain what's really happening.
So please continue your vague emotional rants.
People like me will follow up with the facts.
You got it backwards. German industry grew wealthy off the others from bankers giving loans to Greek politicians who only cared about pocketing money as it passed through their hands unchecked.
Now the bankers want european workers to pay the bill.
Everyone hates the word "austerity".
Call it fiscal responsibility, staying within the budget.....whatever.
The only way for govt's to get their debt to DECREASE relative to their GDP is to SPEND LESS.
Call it what you want.....but DO IT !!
ALL the acronyms for "bailouts" are just throwing good money after bad if changes aren't made (REQUIRED).
cranky, I totally disagre
"Europe got along just fine for hundreds of years without a common currency. Each nation gravitated to their own natural level economically based on their culture."
it's not true because most of the time europe used bullion coins of silver and gold. have a look when the european countries last cut their links from gold and to what they linked their currencies because "the dollar is as good as gold".
this currency environment is less than a century old and it has a lot to do with WWI and II.
and a common currency across several countries behaves in many points like a metal-backed currency or bullion coins.
Ghenny: no sunshine - it is 3,900 years of history in Europe. Please go back to school to learn the History of Europe. Please check your spelling.
" Please check your spelling."
(Arrogance vs. non-native-speakers)². But does not compensate for the lack of real arguments.
+1... Europeans at best tolerate each other and at worst kill each other.
kinda like people all over the globe have acted like since man started walking upright. I detect a commonality here...
"Merely a flesh wound."
http://www.youtube.com/watch?v=zKhEw7nD9C4
When you're driving at 100 mp/h or 160 km/h towards a concrete wall, what do you do? Try and think? Wait for the technocrats to figure a way out of the "crisis" or JUST TURN THE FREAKIN' WHEEL AROUND AND AVOID THE COLLISION?
Back you to.
Hahaha hohoho
Million dollar bonus I caught you with a new avatar
And you JTP are not what you seem, your evolution is astounding in its rapidity..
It is finished and I think everybody knows it. In fact I think CNBC was getting us ready for the inevitability of it happening with all their special reports today. With this long weekend anything could happen.
Greece is just a sneak preview of what's to come.
Interview with Ben Davies of Hinde Capital:
http://www.planbeconomics.com/2012/02/26/ben-davies-greece-is-just-a-preview-of-whats-coming-for-the-rest-of-us/