German Coalition Partner CSU To Propose Bankruptcy Procedure To Kick Out Chronic Eurozone Debtor Nations

Tyler Durden's picture

The news out of Europe just keeps getting worse. While earlier we described how the squabbling within Merkel's own party could scuttle her political career, not to mention hopes for ongoing German funding of European bailouts, next we learn that she has not only outright rejected Finland's demands for loan collateralization out of Greece (which would in turn make Greece a selective Debtor In Possession lender, or, in other words, a prepack bankruptcy candidate 101), a move which Finland will likely balk over and very likely unilaterally exit from the second Greek bailout (remember that whole "Greek Bailout #2 is Dead on Arrival" from June 5?), but what is worse, according to Der Spiegel, tomorrow CDU coalition partner CSU will likely propose several "explosive ideas" which not only reject a common "economic government" for the eurozone (thereby slapping Sarkozy fully across the face), but also consider "creating a bankruptcy procedure to kick out of the euro countries that aren't willing to stick to the debt limits laid out in the euro zone's Stability and Growth Pact." In other words zero steps forward, and as many steps back as it takes to get us to before not only the July 22 Greek bail out, but all the way back to the beginning of the year. Only this time, the market is fully aware that both Italy and France are also on the hook: that can not be unwound with any paper.

From the WSJ:

Greece has moved away from attempting to reach a bilateral deal with Finland, under which it would have provided collateral in exchange for fresh aid, Ms. Merkel told German newspaper Bild am Sonntag.


"The creditworthiness of the country would suffer further" if some aid is collateralized and other aid isn't, Ms. Merkel was cited as saying by the paper on Sunday.


The proposed bilateral collateral deal between Finland and Greece was effectively taken off the table last week after several euro-zone member states, including Germany, opposed it. Officials from the 17-member currency bloc held talks last week in an effort to find a new solution that would be acceptable to all euro-zone members. Talks are expected to continue this week.


Finland's collateral demands have opened a new rift within the currency bloc, threatening to derail a second €109 billion bailout package for Greece. Under the bilateral deal, Greece would provide several hundred million euros' worth of cash collateral to Finland in exchange for the Finnish contribution to the bailout.

While we now look forward to the Finnish (no pun intended) response, more interesting will be the market's response to Germany pulling out all the scabs on still festering wounds, and reminding Europe that countries that habitually misrepresent their economic condition will liekly, finally, feel the consequences of their repeated lies. Speaking of does anyone even keep track how by many billions the 2011 Greek budget deficit will miss the Troika's projections, oh so critical in making Bailout #2 possible? Or is the only focus now on what the monthly bank run out of Greek banks has lowered deposits to?

CSU leaders are set Monday to discuss a paper co-drafted by CSU General Secretary Alexander Dobrindt that rejects a so-called common "economic government" for the euro zone as recently suggested by French President Nicolas Sarkozy, and implied in Ms. von der Leyen's proposals.


The paper contains other explosive ideas. CSU leaders, according to Der Spiegel, consider creating a bankruptcy procedure to kick out of the euro countries that aren't willing to stick to the debt limits laid out in the euro zone's Stability and Growth Pact.

More for our Teutonic readers in Der Spiegel.

So what is Merkel left with? Not much - the same as what Obama has copious amounts of in stock: unabashed, Kool Aided, hopium:

Despite the internal squabbling, Ms. Merkel told Bild that her current center-right government will stay in power not only until the next elections in 2013, but beyond. The coalition currently trails the opposition Social Democrats and Greens by a wide margin in recent opinion polls.


Ms. Merkel also said she is confident she will persuade lawmakers from the CDU and from her junior coalition partner, the Free Democrats, to approve changes to the euro zone's rescue fund. 


Ms. Merkel also told Bild that common bonds for the euro zone are the wrong measure to overcome the current debt crisis.

That's swell... Now, what happens if Plan A fails. Surely there is a Plan B. Right.... Right???

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French Frog's picture

Should be bullish for the Euro lol

DonutBoy's picture

It is actually.  It means someone is getting real about the path they are on.  An actual default and Euro exit for the PIIGS would strengthen the Euro.

Bananamerican's picture

kicking out the Eurowe trash takes some of the "fun" out of even having a "common currency"....

maybe they should just call it the "Francfurter" instead....

Ahmeexnal's picture

You'reOwned was complete idiocy from day one.


valuetrader's picture

I absolutely agree that kicking some of the PIIGS out will be good for the EUR. Of course, the ECB as well as the European banks will have to be recapitalized but this has to be done anyway. There will be money printing for sure. Still, if they keep the PIIGS in the EUR, there will be more money printing than if they kick some of them out. Hey, lets slaughter some PIIGS for the holidays! We can leave one or two PIIGS around for next year!

Freddie's picture


You are correct.  The CSU in Bavaria is pretty sensible.  They are on the right path.  After the euro came into being - most Germans missed the euro and Italians missed the lira.  It was a stupid police state things to do - forcing the EU on people who did not really want it.

bankruptcylawyer's picture

the resulting euro, confined to a few core countries, will take a few years to restrengthen, and then no-one is going to buy american debt, and we will officialy be left with a japanese economy. with citizens forced to 'save' by buying treasuries. 

eentually people will just spend all their money and behin hoarding physical wealth. 

sun tzu's picture

They can't buy EU debt unless there are Eurobonds

French Frog's picture

Replying to Donutboy:

That's an over-simplistic view: maybe a correct one in the very long term but not a tradeable one to say, enact a long euro-position when/if it happens.

How can kicking the PIIGS out of the EU be bullish for the Euro? Many banks would have to take a big haircut on govt bonds held and would need to be recapitalised again: that's only likely to happen with more QE (ie money printing). On top of that, the kneejerk reaction would most likely be $ positive (Euro negative) as it's always the case when the shit hits the fan. After all, the weakness in the $ in the last 2 years has been well documented in here as being a primary effect of US QE, so why would a ECB/EU-wide QE program lead to a stronger Euro when the same action across the Atlantic has the opposite effect?

knukles's picture

Gold, gold, gold, gold, gold, gold, spam, gold.

But don't worry, the Special August (get it son, August, I mean, August) Committe Representing the Special Needs Countries of the Once Maybe Pretend To Be Great EU and Beyond Debate and Obfuscation Organization (La Loadasnot) will meet in Emergency Planetary Session again and announce that all will be well after everybody pledges to make an extra special more than token effort to beggar thy neighbor only modestly before impending doom.  Ms LeGrandeLegarde's special insights shall prevail when as she announces that she'll select "Bullshite for $100 trillion, Alex." In response, it is expected that the PPT will rally the ES, euro and EM debt sharply Monday before the Long March to Hell continues to be realized for the rest of the week.   
And now back to the Intense Unbelieveable Coverage of the Non-Event of the Year We've been Save From by REMA, BigSis and all the politicians on Recess Break.

DoChenRollingBearing's picture


Oh, OK, I feel better that a committee like that with an agenda like that will solve everything!

TruthInSunshine's picture

In the mean time, The New York Times (of all papers), comes out with a major piece by Grethchen Morgensen, saying "oh noes! The bailouts didn't help Main Street, and Paulson, Geithner & Bernanke have lied to the American People" -

- but wait for it; Morgensen says the Bernank WILL DO IT AGAIN, but that this may be a "tough sell" to the American People.




The Rescue That Missed Main Street


By Published: August 27, 2011

The Federal Reserve lent billions to banks during the financial crisis, but has done little for taxpayers, Gretchen Morgenson writes.

The Rescue That Missed Main Street




Published: August 27, 2011

FOR the last three years we have been told repeatedly by government officials that funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system, and beneficial to Main Street.

But this has been a hard sell to an increasingly skeptical public. As Henry M. Paulson Jr., the former Treasury secretary, told the Financial Crisis Inquiry Commission back in May 2010, “I was never able to explain to the American people in a way in which they understood it why these rescues were for them and for their benefit, not for Wall Street.”

The American people were right to question Mr. Paulson’s pitch, as it turns out. And that became clearer than ever last week when Bloomberg News published fresh and disturbing details about the crisis-era bailouts.

Based on information generated by Freedom of Information Act requests and its longstanding lawsuit against the Federal Reserve board, Bloomberg reported that the Fed had provided a stunning $1.2 trillion to large global financial institutions at the peak of its crisis lending in December 2008.

The money has been repaid and the Fed has said its lending programs generated no losses. But with the United States economy weakening, European banks in trouble and some large American financial institutions once again on shaky ground, the Fed may feel compelled to open up its money spigots again.

If the Fed reprises some of its emergency lending programs, we will at least know what they will involve and who will be on the receiving end, thanks to Bloomberg.

For instance, its report detailed the surprisingly sketchy collateral — stocks and junk bonds — accepted by the Fed to back its loans. And who will be surprised if foreign institutions, which our central bank has no duty to help, receive bushels of money from the Fed in the coming months? In 2008, the Royal Bank of Scotland received $84.5 billion, and Dexia, a Belgian lender, borrowed $58.5 billion from the Fed at its peak.

Walker F. Todd, a research fellow at the American Institute for Economic Research and a former assistant general counsel and research officer at the Federal Reserve Bank of Cleveland, said these details from 2008 confirm that institutions, not citizens, were aided most by the bailouts.

“What is the benefit to the American taxpayer of propping up a Belgian bank with a single New York banking office to the tune of tens of billions of dollars?” he asked. “It seems inconsistent ultimately to have provided this much assistance to the biggest institutions for so long, and then to have done in effect nothing for the homeowner, nothing for credit card relief.”

Mr. Todd also questioned the Fed’s decision to accept stock as collateral backing a loan to a bank. “If you make a loan in an emergency secured by equities, how is that different in substance from the Fed walking into the New York Stock Exchange and buying across the board tomorrow?” he asked. “And yet this, the Fed has steadfastly denied ever doing.”

If these rescues were intended to benefit everyday Americans, as Mr. Paulson contended, they have failed. Main Street is in a world of hurt, facing high unemployment, rampant foreclosures and ravaged retirement accounts.

This important topic of bailout inequities came up in Congress earlier this month. Edward J. Kane, professor of finance at Boston College, addressed a Senate banking panel convened on Aug. 3 by Sherrod Brown, the Ohio Democrat. “Our representative democracy espouses the principle that all men and women are equal under the law,” Mr. Kane said. “During the housing bubble and the economic meltdown that the bursting bubble brought about, the interests of domestic and foreign financial institutions were much better represented than the interests of society as a whole.”

THIS inequity must be eliminated, Mr. Kane said, especially since taxpayers will be billed for future bailouts of large and troubled institutions. Such rescues are not really loans, but the equivalent of equity investments by taxpayers, he said.

As such, regulators who have a duty to protect taxpayers should require these institutions to provide them with true and comprehensive reports about their financial positions and the potential risks they involve. These reports would counter companies’ tendencies to hide their risk exposures through accounting tricks and innovation and would carry penalties for deception.

“Examiners would have to challenge this work, make the companies defend it and protect taxpayers from the misstatements we get today,” Mr. Kane said in an interview last week. “The banks really feel entitled to hide their deteriorating positions until they require life support. That’s what we have to change. We must put them in position to be punished for an intent to deceive.”

Given the degree to which financial regulators are captured by the companies they oversee, prescriptions like Mr. Kane’s are going to be fought hard. But the battle could not be more important; if we do nothing to protect taxpayers from the symbiotic relationship between the industry and their federal minders, we are in for many more episodes like the one we are still digging out of.

EVALUATING bailout programs like the Troubled Asset Relief Program and the facilities extended by the Fed against “the senseless standard of doing nothing at all,” Mr. Kane testified, government officials tell taxpayers that these actions were “necessary to save us from worldwide depression and made money for the taxpayer.” Both contentions are false, he said.

“Bailing out firms indiscriminately hampered rather than promoted economic recovery,” Mr. Kane continued. “It evoked reckless gambles for resurrection among rescued firms and created uncertainty about who would finally bear the extravagant costs of these programs. Both effects continue to disrupt the flow of credit and real investment necessary to trigger and sustain economic recovery.”

...Government officials rewarded imprudent institutions with stupefying amounts of free money. Even so, we are still in economically stormy seas. Doesn’t that indicate that it’s time to try a different tack?

Dick Fitz's picture

Knukles, I love you.

Got gold, bitchez?

PulauHantu29's picture

Bankers never, ever take losses. Only shareholders  and sheeples do.

DosZap's picture

Well, looks,good,sounds good,feels good, Uhmmmmmmmmmmmmm is good.

Alas poor Euro, we knew the well...........................

Quick, into the Benny Bux, back up to 78!!!!

The Deleuzian's picture

It's crystal clear...  Leaders in the EU don't know what they're doing...

@ best, IMHO I don't see how humpty dumpty will be put back together again... But somehow this will be spun as bullish!!

macholatte's picture

Under the bilateral deal, Greece would provide several hundred million euros' worth of cash collateral to Finland in exchange for the Finnish contribution to the bailout.

What does that mean?

espirit's picture

Fin's want gold as collateral.

Freddie's picture

The Finns have among the highest IQ's in the world.  My guess is they are waking up (finally) to the Euro/EU/EUSSR scam.

Ahmeexnal's picture

The Finns have among the highest IQ's in the world.

Is that why they have the highest rates of alcoholism and suicide?

Sunshine n Lollipops's picture

Maybe he meant the news was 'earth-shaking'. ;o)  

Vampyroteuthis infernalis's picture

The news out of Europe just keeps getting worse.  

How is this bad news? It is time to stop this charade known as the EU and find a more solid economic system for the biggest developed economy in the world.

LeBalance's picture

Bad as in those walking on air off the cliff finally look down.

/that would be the Ponz and Richie C./

Mongo's picture

Angela Merkel should ask herself, What would Jesus do...

LeBalance's picture

with respect to moneychangers Jesus' choice is in: turn over the tables.

he got nailed for that one.

as far as Frau Merkel, she's an agent of the banksters so she will do what she's told.

cause she read the Bible?

Jack Sheet's picture

About fucking time the CSU pulled their finger out and actually present a position with regards to EU bailouts. Up to now their primary electoral issues have been momentous ones such as schools and freeway tolls. Unfortunately however, they are only a state party and are joined at the hip with the CDU regarding representation in the Bundestag after general elections.

jakethesnake76's picture

Remember the S&P downgrade , even a tiny bit of truth is unwelcomed...

interbanker's picture

The same thing will happen is the USA, but within their own states of the Union, starting with Calfornia.

DoChenRollingBearing's picture

Yes, that's a real concern.

Barron's this weekend gave the lowest ratings to California (A-) and Illinois (A) of the 50 states.  They used complicated criteria to rate the states that I did not fully understand even when carefully reading the article.

I do not see how California avoids an apocalypse.  And Illinois is so corrupt (I believe Mish is from IL, and he chronicles lots of sleaze from that state).

Freddie's picture

Barrons went easy.  They are an obama/Al Waleed/murdoch shit paper now.  They said Ron Paul's gold stock portfolio was a bet again America or some other shit.  Mish Shylock is probably from Il cause he is a slimeball too.  CA and IL are toast.  They should be CCC-. 

Manthong's picture

To say that Illinois is as politically disgusting as fresh warm diarrhea, vomit or puss is to be disrespectful of legitimate human body secretions.

knukles's picture

But we'd get lonely.  

Long-John-Silver's picture

Bernanke will save the day by opening the FED spigot with unlimited digital bailout dollars.

Soul Train's picture

not quite that easy for Bernanke to do, unlike last time. Lot of his tools have either been lent out already, or not fit for purpose.

Plus, freedom of information act has already gone to the Supreme Court, and the Fed will have to disclose much more quickly bailouts to Europe bank mafia. Next time, the fireworks in the USA will really sparkle the sky as Americans start to get the picture.

--  and also don't forget politics/ this is real.

The Fed doesn't need more politics. That path always ends in ruin for the players. Always. And the Fed doesn't want to openly play that game.

Once Americans understand the BIG LIE of the Fed, and banksters, then it's end game.

And don't think for a second that more and more of these politicians won't try and leverage anti-Fed talk to swing votes to awakening sheople in america.

Banksters shun publicity. Fed knows their shareholders want to keep veiled best possbile from public understanding and outrage.

I tell you, the political election and increasing focus on the Fed is significant. Never before have I SEEN SUCH DAILY FOCUS ON THE FED.


Joy on Maui's picture

I agree - this is potentially the catalyst to the game changer, and people are underestimating it.

Never underestimate the magnetism of certain kinds of reasonings toward a scapegoat, deserved or not.

Especially in politics.

Signed, a german expat

StychoKiller's picture

"By their fruits shall ye know them!"

Very damaging evidence:

a. US Govt and the Fed spend $Trillions and

b. Citizens see NO BENEFIT, only inflationary effects!

Couldn't come up with a more worthy scapegoat than the Fed at this point!  "Get the Senator back on the bus!"


gwar5's picture

This is Bullish for democracy and self government. Unwind the damn EU altogether. They can thank us later for the advice. I know of very few Europeans that actually want EU anymore. Most now see it as an encroachment upon their liberties by the unelected elites and bureaucrats who have carved out an unaccountable new autocracy for themselves. 





sqz's picture

Then you don't know many Europeans.

There's a huge difference between the failed Eurozone experiment and the EU.

DCon's picture

Is shit getting real yet?


Akrunner907's picture

I can hear the timbers cracking on the house of cards.  Maybe this will be the event horizon that begins to disassemble the world economy.  Let's see, checklist:  food, check;  guns, check; bullets, check; water system; check, alternate power source, check; medical supplies, check; communication devices, check.  Yep, I am set; let the party begin.

narnia's picture

do these guys have hank paulson on retainer yet?  it's about time for the doomsday, end of the world, we have to do whatever it takes to keep the Euro together speech. this is ultimately just about the banking system at this point, right?

lolmao500's picture

Germans should kick that commie witch out of there (she was a high ranking politicians in East Berlin) and put CSU in charge...

CSU seem to have a minimum of common sense...

monopoly's picture

This is great news. Bet spoos futures up 9 or 10 points. The more lies they tell the higher the markets go. America, land of the ____. Fill in the blank.

Sudden Debt's picture

No reason at all to not start buying PM's with your Euro's my Eurofriends...

Nop, all is fine... it's just a bad dream which might still have a happy ending... a final destination ending...



DoChenRollingBearing's picture

I would encourage my American friends to buy PMs as well.  You Europeans are just a little further down that trail than we are.

Think of this way: Europe is our canary in the coal mine!