Why Germany Would Prefer a "Grexit" to Debt Forgiveness

Phoenix Capital Research's picture

Stocks are soaring today because Greece agreed to another austerity program. However, all this really means is that negotiations can begin for another Greek bailout. The bailout itself is at least 4 weeks away assuming that everyone can agree on everything.


The next steps are:


1)   Germany’s parliament must issue a mandate giving Chancellor Angela Merkel the right to negotiate a new bailout deal with Greece.


2)   Finland’s, the Netherland’s, Slovania’s, Estonia’s, and Austria’s Parliaments also must agree to let their Finance Ministers negotiate a new deal with Greece.


3)   EU Finance Ministers must negotiate a new bailout deal with Greece.


4)   Germany’s parliament must sign off on the new deal.


5)   Greece must accept the deal.


Anyone who claims a deal is within sight is out of his or her mind. This process will take weeks if not months to complete… assuming it even occurs. Indeed, there are numerous issues any of which could derail the whole process.


The most important development is that both the IMF and the ECB have floated the idea of debt forgiveness. This is the first REAL solution that could reduce Greece’s debt load… but it is completely impractical in that it sets the stage for potential debt forgiveness deals for Spain, Italy and possibly even France down the road.


All of those countries will come knocking asking for help at some point. The fact is that their Debt to GDP levels have soared since the EU nearly collapsed in 2012.


Spain's Debt to GDP has risen from 69% to 98%. Italy's Debt to GDP has risen from 116% to 132%. France’s has risen from 85% to 95%.  


This is why German political leaders such as Finance Minister, Wolfgang Schauble, are warming to the idea of a “Grexit”… because as painful as that might be, kicking out a problem country is a more appealing template for future negotiations with problem countries than debt forgiveness.


Remember, the entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.


Spain has over $1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut or debt forgiveness for them would trigger systemic failure in Europe.


EU banks as a whole are leveraged at 26-to-1. At these leverage levels, even a 4% drop in asset prices wipes out ALL of your capital. And any haircut of Greek, Spanish, Italian and French debt would be a lot more than 4%.


Remember, at the end of the day, it’s all about the big banks’ derivative exposure, NOTHING else. This is what has driven every Central Bank action since 2008. And it’s what will drive Europe’s future negotiations for a 3rd Greek Bailout.


The reality is that the issues that caused 2008 (excessive leverage, toxic derivatives) were not solved. If anything they have worsened. And today, most Central banks are sporting leverage ratios well above those that took Lehman Brothers down.


Another Crisis is coming. And it will feature entire countries going bust, not just a few banks.


If you've yet to take action to prepare for this, we offer a FREE investment report called the Financial Crisis "Round Two" Survival Guide that outlines simple, easy to follow strategies you can use to not only protect your portfolio from it, but actually produce profits.


We are making 1,000 copies available for FREE the general public.


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Best Regards

Phoenix Capital Research




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Mountainview's picture

Debt forgiveness is forbidden by EURO rules. A Grexit is therefore a precondition for a debt haircut. Europe is  a (too) complicated animal.

Villageidiot777's picture

He who exits the first, exits the best: http://www.finlandtimes.fi/national/2015/07/17/18557/Keskusta-MEP-wants-...


Finexit might be the thing that is going to Fixit.

Blopper's picture

Regardless of which party prefers a Grexit or a debt relief, it is still necessary that Greece remain in the EU as well as be overburdened with debt in order for the Rothschilds to crush the European economies and bring forth their One World Government (or New World Order).

This is not a matter of rationality, or of making the right policy or decision, or what's good for the economy, etc etc.

This is a matter of setting up the right foundation (regardless of good or bad, right or wrong) for a new age of global centralized government under the tyrannical rulership of the Rothschilds.

sagitarius's picture
sagitarius (not verified) Jul 17, 2015 2:34 AM

what a funnly country, on which continent, which map can I find it? Slovania’s, 

SO is it Slovakia or Slovenia?

It is parliament in Slovakia, to vote about further EU-Greek negotiations. In Slovenia it is a subject to Government and not parliament, to decide. 

RMolineaux's picture

Slovakia was part of the combined republic of Czechoslovakia, but separated recently.  It is immediately to the east of the Czech Republic on the map.  Slovenia was part of Yugoslavia until 1991 when it separated.  It is south of Austria on the map.

steveo77's picture

I thought this was a joke, just something made up to take a pot shot at the bama, then I Googled it and found it on Whitehouse website

He said this at 4 PM, after the attacks.


sagitarius's picture
sagitarius (not verified) steveo77 Jul 17, 2015 2:35 AM

They selected a total pervert into the office. But gringos love him apparently.

RMolineaux's picture

It would be interesting to know how many government bonds, as well as credit default swaps are on the books of European banks.  While the swaps may be fudged (they already have been), it is hard to see how they can fudge a steep drop in government bond prices.  Unless, of course, like the US, they change their accounting rules to show all government bonds at cost, claiming they are long-term investments and not trading positions.

Luis_'s picture

They'll do whatever it takes to sweep the mess under the rug, at least as long as possible. And that's the only thing I know for sure.

To pretend and extend.

acetinker's picture

Ya know, if the average Joe ever realizes the mind-fuck that is central banking... they'll just go back to doing what they were doing.

Sooner or later (Lehman was a warm-up) these "infallibly wise" banker fucks'll turn on each other.

Looks like it might be sooner.

Got popcorn?

kchrisc's picture

I'm sure a hard fought "deal" was struck for Kunta Kinte as well.

Liberty is a demand. Tyranny is submission..

harrybrown's picture

whatever... heard it all before, still stacking...nothing has changed here.
quick point to note, silver Britania's & various silver bullion bars are either out of stock or very low at many reputable online outlets in UK.
Anyone else finding similar elsewhere?

Krumnoltzwitsky's picture
Krumnoltzwitsky (not verified) harrybrown Jul 17, 2015 3:09 AM

I'm finding here in Australia that a lot of dealers of silver bullion bars and rounds are running low on stock. I'm stacking regardless of what happens and I'll keep stacking up until the point that everything implodes.

DaveyJones's picture

"We are making 1,000 copies available for FREE the general public"

but they already tried printing money?

RaceToTheBottom's picture

OK, the solution is within the number of convertibles the German car companies plan on selling next year.


It is always all in the numbers!!!!


disabledvet's picture

Southeastern Europe is a major...if not the major...source for German base metals.

Seems like Greece is being thrown under the bus for a pittance here.

Manthong's picture

It was the end of October 2011 when the Fed decided that with $500B of swaps with the first EU LTRO, conventional economics and the market did not matter anymore...

I know this for a fact because that is when they handed me my ass on a platter.

1 know better today.

Edit: then there times when LTRO2 and  large scale whatever-the F.....

"Whatever it takes" is the banker financial scamster mantra........  

  it is all is so big a scam that it boggles the mind.