German Government Advisor Lars Feld Tells Rundschau Greek Default Would Have "Limited" Impact

Tyler Durden's picture

An interesting interview in Frankfurter Rundschau with German government advisor Lars Feld shares Germany's latest perspective on Greece, which is, as many expect, that the country at the heart of the Eurozone is merely setting the liquidity framework and backup preparations for the inevitable. To wit: "Restructuring Greece’s debt would cause “limited” reaction in financial markets because they have been expecting a Greek default for some time." Alas, that was the hubris that drove the decision to send Lehman over the cliff. But the world has never learned from history, why should it now? When asked if Greece is broke, Feld cuts to the chase "I fear that Greece has a solvency problem" translation - yes. Not that we needed to get confirmation with 1 Year yields in the mid 100s, mind you. Yet despite recognition of the inevitable, when asked whether Greece will leave the Eurozone, his response: "That would be a disaster - for Greece and for the euro-zone... Greece's economy and its financial system would sink into chaos, at least for a brief period time. And the speculative floodgate against the euro and its member states would open. Those who believe a Greek ouster is possible is at best naive." And therein lies the rub.

Full google-translated interview:

Despite billions in support of Greece is not out of the crisis. Athens this year will fail to meet its obligations, the deficit will be higher than planned. Leaders from the FDP and the CSU are therefore calling for a debate about a bankruptcy in the country. CDU and the opposition have warned that a bankruptcy would lead Greece to the markets to panic. Ultimately, the bankruptcy Athens can not be avoided, however, says the economy Lars field. And it is expensive.

Professor Field is Greece broke?

I fear that Greece has in fact a solvency problem.

How do you say that? Finally, underpinning all aid credits for Athens on the assumption that the country is solvent or at least is.

Greece is insolvent in the sense that its public finances are not sustainable. For two reasons. First, Athens is an extremely tough austerity program imposed. This savings program should be maintained for a further ten years. The government has so for years the population of strict waiver request to finance the interest payments, especially to foreign countries. This is not through politically. Second, the savings program is no alternative, but also chokes off economic growth, which exacerbates the debt situation.

And if the Greek economy is still recovering?

There would need a credible growth strategy. I do not see.

The end of September, the EU will decide on the disbursement of loans to Greece next. She throws good money without a barrel in the ground?

In the current situation could be a non-payment of loans is a major problem and will exacerbate the crisis in Europe. But even if the loans are approved, must decide how Greece's debt can be restructured.

"Restructured" simply means "deleted"?

Yes. The Advisory Council has the following suggestion for this: the Greek debt, which is currently owned by government and private creditors are given the euro rescue EFSF. In return, the creditors will receive safe EFSF bonds - but only half of the nominal value of Greek bonds. Say: Creditors forego half of their claims. EFSF Athens as the main creditor could then put pressure on Greece to reform its economy.

Would not that have a transfer union - the European Central Bank would eventually pay, Greece has purchased the bonds with an estimated 40 to 50 billion €?

The ECB could swap their holdings of Greek government bonds without discount and would be a piece of the EFSF released far from the fiscal responsibility. A transfer union is not, because this action in the matter, is in the amount and limited duration. There is also no transfer flows to Greece, but the creditors will receive AAA-rated bonds EFSF.

With a debt restructuring would be the market's confidence in Greece, then probably for the foreseeable future. How should the country ever again borrow money?

The trust has been destroyed yet. Only Greece is cutting its debt as the debtor again solid.

As waiver of 50 percent likely to survive the Greek banks do not have the money borrowed Athens.

In order to support her, would again provide the EFSF 20 billion euros.

This costs the EFSF much money, around 200 billion euros for the Greek national debt plus 20 billion for the banks. Then there are the loans already promised to Ireland and Portugal around 44 billion euros. Then there would be no more money left over, if the crisis in Spain and Italy on handles.

For such a case would actually be available only transitional assistance for these countries. Originally, the EFSF be put through its increase in the level of being able to capture even Spain. That would not do anymore. And Italy is too large for the EFSF.

A bankruptcy of Greece would probably stir up panic in the markets. Are not you worried that the crisis spreads to other countries?

An infection of Ireland or Portugal would be no problem. Both countries are funded for the foreseeable future over the EFSF and do not need money from the financial markets. The banks of both countries are not heavily involved in Greece, for it would be a waiver therefore bearable.

The major risk factor but are Spain and Italy. Here threatening infection. This was demonstrated in the past week. As a leading FDP politicians have speculated about a bankruptcy in Greece, the interest in these countries turned up. Italy had to pay investors 5.6 percent interest, two months earlier it was only 4.9 percent.

I think the markets expect long with a bankruptcy Athens. Enters it, the market reaction would probably be limited.

And if not? The crisis is spreading to Italy from the euro rescue package would be too small EFSF - after Italy takes over the next three years about 500 billion euros in loans.

Especially Italy and Spain would then hang up credible consolidation strategy and indicate the financial markets so that they address the problem.

What happens if these countries are indeed up plans, but the markets can not find it credible?

Then there are three possibilities. In some, the European Central Bank buys Italian and Spanish bonds and supports so the market. Or the euro rescue EFSF buys the bonds, but what he would have to be enlarged again. The best thing would be to turn the EFSF a banking institution. Thus, the bailout could then borrow money from the ECB and would have enough firepower. In contrast to the ECB may make regulations EFSF the country.

Greece should not simply leave the euro zone?

That would be a disaster - for Greece and for the euro-zone. The average debt in this case, cheating is not 50 but 80 to 90 percent. Greece's economy and its financial system would sink into chaos, at least for a time. And the speculation against the euro and its Member States would open the floodgates. Who keeps an outlet of Greece for the solution that is at best naive.

Interview by Stephan Kaufmann.

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blindman's picture
[KR186] Keiser Report – Dollar-Trapped!
Posted on September 20, 2011 by stacyherbert| 23 Comments
Stacy Summary: We interview Bill Still.

max2205's picture

This shit keeps on giving....

Matto's picture

Steve Keen talking in NY this Friday


oobrien's picture

Tyler, when's the fucking crash?

I feel litke a Jew out in the desert!

I'm about ready to worship the golden calf.

Let's get a date.

I'm crash weary.

New_Meat's picture

u might not make it to the promised land.

kurzdump's picture

What if the crash does not happen all of a sudden but instead slowly drains the wealth of our middle class to the upper 1% of the population? What if democracy slowly turns into dictatorship? Are you ready for that?

Humans tend to miss big changes if they do not happen cold-turkey. Instead we adopt to the new situation step by step.

Eventually we notice that someone pulled away our chair when we sit down.

spiral_eyes's picture

The impact would be limited to causing a cascade of defaults, and at least a partial collapse of the European (and probably also the global) banking system.

Impacted limited, bitchez. 

SofaPapa's picture

The impact would have been a hell of a lot more "limited" had they not already spent hundreds of billions trying to prevent what everyone always knew was the endgame.  These guys are really incompetent when it comes to cutting their losses.

GeneMarchbanks's picture

Limited impact, eh? Depends on your perspective. If you live in a jungle in Papua New Guinea, then maybe. But if you're in Athens, well then, ... good luck.

Germans repeating lies to convince themselves that the Euro works...

TheFourthStooge-ing's picture

...and the subprime mortgage problem is largely contained.


LookingWithAmazement's picture

Greece default - no Armageddon. Boring world we live in.

jdelano's picture

wrong.  It's just that watching Greece default is like watching The Godfather on network television.  There are TONS of commercial breaks before the big denoument and all the curse words and really gory bits are edited out.  

Irish66's picture

We now live in a world society were headlines are ignored

and the truth doesn't matter.  What headline will cause reality?

GeneMarchbanks's picture

None. There is no reality only actuality. The world is asleep.

jdelano's picture

what do you turn on when you turn on?

Jeff Spicoli's picture

Ohh wow .. LIMITED huh.  ahhhh Like huffin amyl nitrate in shit ..


dcb's picture

Man, you folks seem to have no real idea of what this is all about. If greece dafaults, and chaos doesn't happen, then the idea that other defauls would be allowed will forment in people's minds. that means the potential to endless taxpayer backstops of bankers. I'd bet that even if it wouldn't be a big deal, the traders at teh big banks would make it one, because their primary goal is to maintain the taxpayer backstop at all costs.


I am conviced the market chaos the happened afer lehman was in fact designed ( much of it by goldman as determined by prop desk trading amounts (data no longer public). Plus they had short postions on many other positions to juice.

We can all see how the US markets a keep buying the dips on the european problem, emerging markets no so. The only way to expalin the us actions is that the plunge protection team, or the big boys aren't so short anymore.

yabs's picture

bring on the crash already i'm getting bored

Silverhog's picture

Is Lars from Mars? Economy is all but at a standstill. Where is the economic engine to pull through this?

Peter K's picture

Thank God (with a capital G) that Greece made the coupon payment today :)

msmith's picture

EURUSD looks like resistance may hold to turn the pair lower soon.  The larger trend is clearly down.

Dezperado's picture

Dont they need time to print and distribute the new money?

One month is it enough?

P Rankmug's picture

Just think of the market as a modified P-51 Mustang and Greece as its elevator trim tab.

oobrien's picture

Fuck Ben Bernanke.

But in his defense, I have to say this.

If one were to adopt the Ron Paul method of government, we'd all be in an out of control deflationary depression.

Yet, if we keep printing money, we are staring down the barrel of a currency crisis.

It's a case of pick your poison.

What's a FED Chairman to do?


youngman's picture

"I fear that Greece has in fact a solvency problem."

This statement is enough for me to show me either this guy is an idiot...a professor and he does not know yet if Greece has a problem or not...or he is scared shitless and can´t tell the truth...I think he is the latter...he knows they are broke...will go broke..but he is trying to keep it calm...unfortunatly that will cost people more money in the long run..and in the short run....someone just bought 3 month notes...for 3%+...who?????  this is much much bigger than just littel GREECE....there is so many CDS that they will take down the world again..think 10 AIG´s...they saw AIG get bailed why not jump in and make the same amount of money knowing that the Fed will bail them out....if you do not think they will bail them are wrong..IMHO..Geitner will bring in a 50 page proposal not a 3 page like Paulson...

dwdollar's picture

"Restructuring Greece’s debt would cause “limited” reaction in financial markets because they have been expecting a Greek default for some time."

IF that's the case, then why try so hard to save Greece the past 2 years??? Can you explain that one Lars? Don't tell me... Only since date XX-YY-ZZZZ has the market 'priced in' a default. Yeah right... We'll see what the market does on the day that it happens and what gimmicks are used to ramp it up before and after the announcement.

fdisk's picture

My only fear is that Bernank could undershoot tomorrow and then

everything will collapse - Gold included. F* Greece "too small to

fail" :)))

jdelano's picture

Why is this so hard for so many people to understand?:  It's not happening tomorrow.  Ben cannot print with inflation rearing its head as to do so would be DIRECT DEFIANCE OF THE FED MANDATE.  He would be forcibly removed from office.  No QE until after an emergency/exigent circumstance of some sort, likely a Greece default, gives Bernk the opportunity to print under the auspicies of protecting systemic stability.  That is why the central banks banded together to provide liquidity--Greece WILL be allowed to default, and during the ensuing panic, the printing presses will be turned back on.     

dwdollar's picture

Why is it so hard to understand he launched ZIRP Forever when inflation was well above the mandate? The mandate doesn't mean shit. You think those coward politicians are going to do anything about it? Give me a break.

That said, you may be right about waiting for a panic to 'save the system' as an excuse.

Moneyswirth's picture

Limited impact?


Yes, "limited" to the final push of the global economy off the precipice.  Heckuva job guys...

cosmictrainwreck's picture

it's not the fall that kills's that sudden stop

ZeroBoBo's picture

European leadership: Unparalleled

fdisk's picture

Could FED suppress GOLD before releasing Mister-Twister program
cause second day in the row, same time same action: stuck in the
mud and then dump right in time when US Markets are open.

fdisk's picture

See what I mean? Same time, same drop out of no where.
Look at the chart.. Co-accident? :)

holdbuysell's picture

Give Greece a 50% discount on its bonds, and let's watch how fast the other PIIGS come running for a similar deal.

yabs's picture


give me deflation anyday

savers do well then

curerency crisis destroy everyone

ZeroBoBo's picture

Controlled and orderly default

This is like fighting for peace or fucking for virginity.

Problem with continental Europeans (vs. Brits and us) is like with everything else; even their bank runs are in slo-mo.