Germany, Greece Quietly Prepare For "Plan D"

Tyler Durden's picture

For several weeks now we have been warning that while the conventional wisdom is that Europe will never let Greece slide into default, Germany has been quietly preparing for just that. This culminated on Friday when the schism between Merkel, who is of the persuasion that Greece should remain in the Eurozone, and her Finmin, Wolfgang "Dr. Strangle Schauble" Schauble, who isn't, made Goldman Sachs itself observe that there is: "Growing dissent between Chancellor Merkel and finance minister Schäuble regarding Greece." We now learn, courtesy of the Telegraph's Bruno Waterfield, that Germany is far deeper in Greece insolvency preparations than conventional wisdom thought possible (if not Zero Hedge, where we have been actively warning for over two weeks that Germany is perfectly eager and ready to roll the dice on a Greek default). Yet it is not only Germany that is getting ready for the inevitable. So is Greece.

From the Telegraph: "The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets.Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order. But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them." Funny - it is as if Schauble almost knows that any self-respecting country would tell Germany to go to hell. Then again, this is Greece, whose puppet government is one which only answers to banker demands. And we hardly have to remind readers that of every dollar in bailout cash, Greece only sees 19 cents of it. Then again this is Greece, which is full of sound and fury for a day or two, then is happy to pick up the bar of vaseline for the next 6 months until the cycle repeats anew.

More:

"The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if."

 

The German finance minister's comments are certain to plunge the authorities in Athens into even deeper gloom. On Saturday they tried to sound optimistic, with a cabinet meeting to thrash out the final details of an austerity package.

 

The cuts, including a reduction in the minimum wage, mass redundancies within the public sector, and a slashing of the health and defence budgets, sparked rage on the streets of Athens last week, with buildings set on fire amid angry protests.

 

But the country's politicians are resolutely trying to sound upbeat. "The Greek people have done everything they can and we are determined to make good on our commitments," said Christos Papoutsis, public order minister.

Adding insult to injury...

With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artefacts - just weeks after the country's National Gallery was burgled.

 

One Greek newspaper suggested the state could no longer properly look after the nation's immense cultural heritage. "The Greek state has gone bankrupt, let's face it," the conservative daily Kathimerini said in an editorial.

 

"If the state cannot guard the country's great cultural heritage for financial or other reasons it must find other ways to do it."

 

Mr Schäuble's pessimism will not be welcomed in Athens. The hugely influential German politician's doubts have been growing for several weeks, and prompted angry exchanges when Greece accused Germany of trying to drive it out of the euro.

 

His scepticism is not yet fully shared by Angela Merkel, who is said still to be determined to prevent Greece's financial collapse. "She thinks Greece going bust could cause a shock wave that buries other countries - with Spain and Italy among them. It could break apart the entire monetary union," said an official.

 

But it has support from Austria and Finland - holding the prospect that a eurozone meeting tomorrow will fail to agree the next set of EU-IMF payments for Greece.

And lest it be assumed that only Germany is preparing for the inevitable, here is the FT on Greece's own preparation for "Plan D":

On Friday afternoon, Constantine Michalos, president of the Athens chamber of commerce, sat in his office – around the corner from where protesters were hurling chunks of marble at riot police – and contemplated what was once unthinkable: that Greece would default on its debt and then be forced into a messy exit from the euro.

 

“All hell would break loose,” Mr Michalos said, sketching a society that would quickly run short of fuel, food, medicine and necessities. “You would have social upheaval.”

 

This week, that assumption was questioned as never before. Some officials in the Netherlands, Germany and Finland – three of the eurozone’s four remaining triple A governments – now argue that the blowback from a Greek default might not be so debilitating, after all.

 

“I am not advocating a Greek default, hard or soft – but I’m not excluding the possibility of it if the Greeks don’t get their acts together,” Alexander Stubb, Finland’s Europe minister, told the Financial Times.

 

“Europe is prepared. A hell of a lot better prepared than it was on May 9 2010 – and a hell of a lot better prepared than it was last year, so I think we’ve taken the necessary measures.”

And while anyone who is vaguely familiar with rapo banking understands that Greek bonds have been repoed in an infinitely long rehypo chain starting with purchases in the open market, and ending with the ECB, in the process leaving tens of Prime Brokers open for loss exposure, and thus a Greek default would lead to massive impairments, there are those who still think that a Greek default is manageable. It isn't.

Platon Monokroussos, research head at Eurobank EFG, believes a Greek default might even cascade into a full-blown EU exit, because government would probably try to impose capital controls, close borders and take measures that violated EU law.

 

Greece’s mainstream politicians appear aware of this. Lucas Papademos, the prime minister, warned MPs that the country faced “catastrophe” if it did not approve a sweeping austerity package tied to the loan.

Many in Greece realize this. But ever more dont care any more and just want out.

There is a minority – particularly on the far left – that wants out. Their chief argument, endorsed by some well-known foreign economists, is that a devalued drachma would lower wages and instantly make Greece more competitive.

 

They tend to point to Argentina, which broke its peg with the dollar more than a decade ago, defaulted on its foreign debt and has since fared far better than many expected.

 

Yet that comparison overlooks the fact that the Greek economy – unlike Argentina’s – boasts a small production base and few exporters. Most of its companies rely on imports, which would rocket in cost. Sceptical, too, are ordinary citizens. “We are not Argentina,” Mr Stournaras said. “We are not even self-sufficient in agriculture.”

Perhaps there is a reason that whatever happens on Monday will be when the US market is closed - the last thing needed is for the US momentum accentuating HFT algos, who are all that is left of the market, to take whatever trend develops, and run away with it. Or perhaps that is precisely why Europe decided to go ahead with a decision precisely on a day when the US market is closed.

Our personal sentiment is that nothing has changed: the only question on Tuesday will be when the next "drop dead" summit/meeting/shindig will be. And at what point will Greece's fate again not be sealed. Because if Reuters is correct in suggesting that someone, somewhere thinks that that the Greek exchange offer can be consummated in 3 calendar days, or one work day as the 10th and 11th are Saturday and Sunday, then the farce is already long over.

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Cult_of_Reason's picture

"NO! NO! NO!"... "Bear Stearns is fine!"... "Bear Stearns is not in trouble"...

http://www.youtube.com/watch?v=gUkbdjetlY8

IEVI's picture

That was good for a chuckle..thanks.

markmotive's picture

At least someone, somewhere is being realistic about the potential outcome to the EU crisis.

Variant Perceptions recently came out with a Primer on the Euro Breakup...

http://www.planbeconomics.com/2012/02/18/variant-perception-a-primer-on-...

Ahmeexnal's picture

the german sheeple are about to have their real estate bubble burst:

http://www.dw.de/dw/article/0,,15750601,00.html

they just never learn. Hypo and other banks were bailed out in 2008.

Seems like rinse and repeat is just around the corner.  In spades.

http://en.wikipedia.org/wiki/DePfa_Gruppe

economics1996's picture

Just fucking amazes me the federal government parasites would drag down a whole fucking country, and the countrymen and women would not start hanging the federal worker parasites from the nearest tree.

Just fucking amazes me these Greeks ar so stupid they cannot see its the federal government workers fucking them in the ass time after time.

Hi Ho Silver's picture

Just fucking amazes me that anyone is fucking amazed.

 

This will be the 6th Greek default in the past 200 years, which works out to once every generation.

No fucking surprises. Just another Greek tragedy.

“We are not even self-sufficient in agriculture.”  - Stournaras

economics1996's picture

That video reminded me of the Air Force.  

JPM Hater001's picture

Old king cole was a merry old sole my friend...

This fevered pitch too will die down. The will default but as I have said...not yet.

redpill's picture

They should default of course.  As to getting through to the next stage, I think Greece's best chance is getting their country back into shape as a tourist destination ASAP.  A clean, safe Greece with a devalued Drachma would be a huge attraction for European tourists, who would also still have the option of spending Euros there (even after exiting, Euros would still be the primary currency trading hands).  Greeks need to go out of their way to be extremely welcoming to all tourists from across the globe until they are able to otherwise diversify their economy in a self-sufficient manner.

economics1996's picture

Put these politicians heads on a stick.  Hang the bankers.  Fire 90% of the federal workers.  Problem solved.

Pumpkin's picture

You forgot the lawyers. Don't forget the lawyers!

ArmchairRevolutionary's picture

Yep. It's the federal government workers. It certainly has nothing to do with the bankers.

 

economics1996's picture

Who borrowed 160% GDP?  Politiicans.  For who?  It sure the fuck wasn't for the people.

loub215's picture

Welcome to the American Dream...

Think for yourself's picture

GTFO. The greeks are the only western people that really see how their government rapes them in tandem with the banks and actually have the balls to pelt law enforcement with molotovs on a weekly basis, and have been doing so for years now, and keep on fighting even if they are going on empty stomachs to allow their kids the chance to have 1 or 2 meals a day.

You can talk the talk, now wake up to your own country's situation and I dare you to walk the walk as the greeks do. 

Ghordius's picture

German real estate bubble? Wishful thinking. 60% of the residential market is rental. A bit difficult to overvalue and even then not impacting financially fragile segments of the population.

Mr Lennon Hendrix's picture

....triX are for the Bavarian Illuminatti!

Michael's picture

Why do virtually all TV news reporters sound like they're in a constant state of panic when they speak?

Conrad Murray's picture

Their handlers haven't successfully convinced them the files containing the specifics of their lives and daily routines have been contained?

Nah, that's not it. Probably just want to induce fear into their mindless followers.

Ever wonder why you don't see people from the ghetto in the OWS/TEA Party news clips? Is it because those people don't care? Is it because those people aren't interested in the mastabatory practices of non-violence promoting white trust fund hippies? Is it because there's a growing coalition bubbling quietly underground amongst the disenfranchised socioeconomic classes being oppressed by the DC/NY Axis of Evil?

Long Hot Summer, crackerz

EnglishMajor's picture

It is going to look like whack a mole with a police baton in a Chuck E Cheese full of tear gas, except on TV. It will still look like the American Idol stage there.

The Big Ching-aso's picture

 

 

They should plan for "Preparation H".

 

Michael's picture
In case you missed it; Germany drawing up plans for Greece to leave the euro Plans for Greece to default, potentially leaving the euro, have been drafted in Germany as the European Union begins to face up to the fact that Greek debt is spiralling out of control - with or without a second bailout.

http://www.telegraph.co.uk/finance/financialcrisis/9091021/Germany-drawing-up-plans-for-Greece-to-leave-the-euro.html

knukles's picture

Dontcha just fucking love it?
As if this is any new news whatsoever.
To have gone this far, dumping so much "good" play money after bad money just to pay the bankers back who should have never lent money in the first place to a social welfare paradise with absolutely no fiscal discipline making Greece an unforgivable credit risk which they all knew about in any case, meaning all the secondary lending has been done under false pretenses, ie Fraudulent Conveyance....
All so the bankers don't go under cutting off the endless free money to their enablers, the politicians.
Jesus.
And it ain't like it's opaque and behind the scenes.
It's absolutely amazing that the bankers have yet to be the subject of public town square hangings, whippings, beheadings, drawing and quartering and associated public ammusements of yore.
Must be lot of flouride in them there waters.

Hulk's picture

Damn knukles, you just summed up the entire Northern Hemisphere...Nice job!

edit: I hereby dub knukles second paragraph as "the financial theory of everything"

A big QED for knukles!

economics1996's picture

The whole fucking world.

hardcleareye's picture

Hear Hear, knukles rules...... always look for knukles post!

machineh's picture

I hereby dub knukles second paragraph as "the financial theory of everything"

Well deserved!

I would add that when "Knukles Financial Theory of Everything" is reduced to closed form and solved for its eigenvalues, the answer is: 42.

No need to thank me, but you can buy me a drink when you get rich. ;-)

Michael's picture

I could hear you screaming at the top of your lungs knuckles as you were typing that.

 

candyman's picture

i agree but the markets ignore these facts. ponzie all the way

JennaChick's picture

Kyle Bass on where the shit is going to hit the fan and where should you be at the time: http://www.armadamarkets.com/market-info/videos/

TheFourthStooge-ing's picture

mattu13048, posting as the sock puppet JennaChick because his mattu13048 account was deleted for spamming the armadamarkets.com site, spammed the armadamarkets.com site thusly:

Kyle Bass on where the shit is going to hit the fan and where should you be at the time: [link to scammer fraud site removed]

Still shilling for the armadamarkets.com fraudulent spammer website, whose business model is based on spamming? I see.

Fuck off, spammer.

Since you insist on polluting ZH with your spam, turnabout is fair play. Here's something for the search engine crawlers:

armadamarkets.com makes its money by kidnapping Estonian children and selling them into sex slavery in Saudi Arabia, Bahrain, Qatar, Oman, and the United Arab Emirates.

armadamarkets.com runs a fraudulent scam market analysis site that is based on spamming. This site is just a front for their Estonian child kidnapping sex slavery business.

armadamarkets.com terror bomb anthrax shopping mall claymore mine grenade launcher IED assassination hijack Al Qaida ricin electromagnetic pulse Federal Reserve reefer Butthole Surfers doobie

 

JennaChick's picture

Germany will never leave the eurozone, they would lose their control over Europe if they did so. You can move on now. Nothing to see here.

Ghordius's picture

"prompted angry exchanges when Greece accused Germany of trying to drive it out of the euro" - meanwhile the BritPressCorp is on overdrive debating how Greece is better off leaving the EUR for the Drachma (not what 70% of Greeks want). Spin, spin, spin...

Bendromeda Strain's picture

Greece is better off leaving the EUR for the Drachma (not what 70% of Greeks want)

 

Is there a link to these public opinion polls? I don't doubt it is true, but then again, polls are what they are. The phrasing of the question is highly significant. Do 70% of Greeks want their yearly budget drawn up by Brussels? Are you in Brussels? I find your currency avatar curious, but I will say that at least the EU marks their bullion to market and rebalances, so the € isn't just an embossed toilet tissue - yet.

Ghordius's picture

You are right, polls are what they are. Budgets drawn in Brussels? Complicated question - I know many in Southern Europe who would answer yes. No, I have nothing to do with Brussels.

My avatar? Your avatar point too to interesting questions... It made you think, didn't it? I see the world at the brink of serious currency wars... The EURUSD is already a political pair. Interesting times, as the Chinese jinx goes.

Buck Johnson's picture

I totally remember that clip from Cramer.  And then a few days later, wham.  Europe and the US think that they are "okay", but they don't know because of entropy haven increased with the addition of more variables in the mix.  Now they can't use the old charts to figure out the future and they can't use them to say if they are alright financially.

Conman's picture

Does anyone know what the implications are of the German President resigning? From what I gather its mostly ceremonial title like queen of england?

Neidhammel's picture

Taxpayer to pay him “Ehrensold” of € 200K p.a. until he kicks the bucket, Merkel in trouble now to find another moocher willing to earn € 200K p.a. for just shaking hands. No further implications. 

Conman's picture

Well apparently she had to cancel a trip to Italy on Friday because of it. Wondering what this distraction means for them if any. Guessing not much.

knukles's picture

Yeah, see.  The wheels fell off when she had to stay around just to shake hands.
My brother has ALS and my sister always has DT's so I know a lot about shakes.

TradingJoe's picture

NEIDHAMMEL servus vom "anderen" Hammel:)))

WebSurfy's picture

Our German President did some "politically incorrect" warnings towards the bankers in a speech last year., followed by the MSM who did their designated job chasing him (with hillarious stories). They feared he would not pass the ESM treaty. But now everything is  "fine" again. They're going to install an appropiate puppet soon. By the way, the ESM is a MONSTER, leading us (now finally and officially) towards financial dictatorship. That's sth. the MSM don't tell us... so 99% are still sleeping

Conman's picture

Just like the US, we are mutually screwed. MSM tells us when to panic, look at our debt. Last year it was a big deal, now its a barely news when the ceiling gets raised.

Atomizer's picture

You have to wonder if the theatrics of this crisis has come to a head. Shortly, we will find out who Cui Bono from all this drama.

navy62802's picture

This is precisely what I've been wondering for a while now. Who is profiting from the delay.