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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luna_man's picture

 

 

MY MAIN MAN, the "bar of vaseline" won't work this time!...Hey, boys, push out the tub!...Better yet, roll out the barrel!

 

That should work

 

knukles's picture

A bar of Vasoline, eh?
I've heard of many things, but Never a Bar of Vasoline.
Lemme guess, it's shaped like a ......

Urban Roman's picture

Shaped like a jar of lye soap.

Peter Pan's picture

Sooner or later people will realise it's not what politicians dish out that matters but more importantly what people can cope with and accept. At the moment these two factors are poles apart.

LowProfile's picture

"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.”"

..!

...Sounds to me like they better learn how to farm, and quick.

Missiondweller's picture

I wonder if any Greeks citizens are "preppers"

Wolferl's picture

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

 

Wow, you found a Greek who lives in reality.

divedivedive's picture

I've had a few disjoint thoughts on this issue over the last couple of weeks.

- Why don't they give Greece a monthly/quarterly allowance based on acheivements.  I don't see much difference as with a businessman going to the bank for an extension to a loan.

- Doesn't Greece have one of the worlds largest shipping industries ? Isn't that really the Greek gem ? Can't that be put to some national good.

- Other than shipping what do they have ? They have some pretty islands, which from time to time my wife and I looked into for vacationing, only to come to the conclusion they were too expensive. I realize $190Bn is a lot of tourist dollars but maybe the world could help out by planning some vacations.

- What does Greek populace  have to bootstrap itself ? I wish there was a 'Peace Corp' like organization that could infuse a national purpose. I know nothing about Greece, but I envision a lot of salt water. Perhaps they can (with the world's help) come up with a viable solution to water desalination or something. 

- I keep thinking of another Haiti like situation. 

Sorry - I realize these aren't very 'economic' thoughts.

 

Conman's picture

Because most of the bailout isn't for the Greek. its to pay for thier debt, right back into the banksters coffers.

divedivedive's picture

A twist on that - I sometimes wonder if the world wouldn't be better off if all those sub-prime mortgages etc which at some point were 'performing' to some extent had been extended as they were for a while. I think that was Hilary's thought in 2008.

Schmuck Raker's picture

Well, they've got Europe's largest gold mine. But, an Arabian Prince already bought that. So....

americanspirit's picture

But at least you're thinking human thoughts, not ranting in jargon divedivedive. keep it up friend. The world needs more people who care enough to ask these questions from the heart.

strangeglove's picture

If the Glove dont fit, You must acquit!

tobinajwels's picture

So does plan d mean they default? Iam so confused what happens on Monday?

earleflorida's picture

one thing is for certain,... the turkey's are in a raftering frenzy?

DeadFred's picture

On Monday the market is closed so anything can and will happen. Europe will soar or crash and by 9:30 EST Tuesday the markets will return to normal. At least that is what normally happens on a US Monday holiday. Some day that might change. The default is coming, but when? I'm thinking that 100% cash is a comfortable place to be right now. I'm certain to miss that big move when it first happens but I've found that having one's face ripped off is unpleasant.

WonderDawg's picture

No shit, Fred. I did okay last summer but I've given back most of my gains since the fall, trying to time the top. I've failed at that, so I'll sit back now and keep the powder dry. When this thing tops, there will be opportunities to ride it down without having to time it perfectly.

imamonkey's picture

Unless Greece pulls their middle finger out again, this faux "bailout" should occur Monday & then they default on March 20th when they have to pay. I think that's the orderly plan D ...

Kinda reminds me of the Sub-Prime scam but they pulled that on an entire country ...

Troy Ounce's picture

 

 

Plan Ph D.

tobinajwels's picture

That makes sense plan d! Mainstream media just doesnt get it!

Atomizer's picture

What if the Alcoa deal didn't fall thru. LOL

 

Rothschild sued over story on Russian oligarch and EU trade chief 

Case Number: HQ10D02547

Nevermind, this is just another crazy conspiracy story. 

eddiebe's picture

Derivatives meltdown bitchez

Lord Welligton's picture

And while anyone who is vaguely familiar with rapo banking

New one to me.  :)

ZDRuX's picture

Greek Cabinet Approves Final Set of Austerity Measures

 

http://t.co/CRvQPqk1

whisperin's picture

I think we need to look deeper into this from a German perspective and they have to be thinking how do I get this hook outta my (Germany) rear end? As previously posted at ZH before after Greece then comes the rest of the PIIGS. The Eurocrats are trying to bail them out because it looks like Germany has to pick up the tab by treaty. So could the real black swan be that Germany exits the EURO? That is the only way I see them cutting the tie to their obligations by treaty. Chaos yes. Unintended consequences yes. The only solution I see is that they all give up sovereignty and form a United States of Europe. Like that'll happen. What about all those DM's they supposedly had printed. I mean surely they'll use them for something. What say you all?

ekm's picture

Sir,

How could you have a "german perspective"? Did you ever live in Europe?

Conman's picture

I thought the consensus was that german economy depends on exporting to fellow eu members. So, its in their best interest to keep them all on the hook. Isolationism=bye bye export economy

ekm's picture

Yes, but as long as it can last. If the importers can't buy anything any longer, the only way is katharsis (ancient greek word for total cleanup)

Conman's picture

Of course they can buy, when there's infinite liquidity . More debt, more imports, more  exports , more of the same BS.

ekm's picture

That is correct up until the point that the interest from infinite liquidity is unbearable. Remember, MONEY IS PRINTED AS DEBT. I just looked at the Canadian dollars I use every day and the US$ I hold. It says: NOTE - which is debt. Strange enough, I'm looking at a 10 euro bill now and it has no words at all. Just a signature.

Ahmeexnal's picture

Euro banknotes == notgeld.

And they do mention that "the taxpayers of europe promise to pay upon demand the amount of XXX euros".

You might not be able to find that out because it's printed in chinese with UV ink.

ekm's picture

I am actually at awe. Paper money is LEGAL TENDER. It's like a legal contract. The Euro paper has no legal writing? Pretty strange. I never noticed that before.

ekm's picture

The nice joke aside, I think euro is printed here in Canada. I forgot the name of the manufacturer. Same one that prints canadian dollars. In structure, both CAN$ and Euro look very alike.

Conman's picture

I hear you, I keep waiting for that to happen, but in Bizarro-Earth we live in debt = infinite. Look at the US. we jsut keep on keeping on. Increase the debt ceiling year after year - bo problem. Everyone knows its a problem but we jsut hope we die before all hell breaks loose.

ekm's picture

I agree. Timing is impossible. Meredith Whitney is brilliant but made the mistake of what I call "prophetic rapture" (quote from the Old Testament).

Unless one is prophet (communicating with God), timing is impossible.

Now let me ask you something? Do you think bankers are communicating with God?

Goldtoothchimp09's picture

Seems like the most intelligent and efficient decision Germany could make... But........these are Politicians making the decisions!!

slewie the pi-rat's picture

may i have the envelope, please?

...next tranche, BiCheZ!!!  <balloons, marching bands, and children bearing flags>

 

ekm's picture

Hey slewie,

I'm having a feeling that just before "the closed envelope" with "the tranche", we're going to have a 1987 style diving?

How about 3000 dow points vanishing in 3 days?

oldman's picture

@EKM

I was there in '87--out of forty five orders to buy at prices from one to two points above the market on the blackest day-----not a single fill---and no response from the the NYSE for more than three days

Then the 'market stabilization' plan----the old-timers mostly quit over the next year or so---they knew it was over when the market support came in---I still had to pay the rent----But not this time bitchez!!

om   

thanks---I'd forgotten a lot of this shit

ekm's picture

Oldman

Tell us more please. I'm 39 now. At that time I lived in communism, I was 15 and playing soccer on the beach trying to impress quite sweet mediterranean girls.

I've read so much about this stuff and it just sounds like 1987 but have not met anybody who actually experienced it.

Tell us more.

imamonkey's picture

Who the fuck thought it was a great idea to let Greece into the EU knowing full goddman well they had this crazy non-producing economy? Fuck germany do your due dillegence & figure it out next time

Conman's picture

You can thank the squid for that.

ekm's picture

Sir

As a euopean from ...where else, the mediterranean who is addicted to studying this stuff in my abundant free time, I am explaining to you that Euro is NOT, and I repeat is NOT an economic project. Euro is a political project. There were about 30 years of preparations and studies. Nobody cared if it made sense financially because.....hear this....because they thought that at the first disaster....a FISCAL UNION would be forced on everybody.

This is the dream of Charlemangne, Napoleon, Hitler etc. A unified Europe, but without a dictator.

The results of the experiment:

Enter your opinion.

Ahmeexnal's picture

The results of the experiment:

 WWIII

ekm's picture

It could be, but chances are very very slim. USA is absolutely the ruler of the planet right now. Nobody would be out of mind to openly stand up to it with real actions. Forget little stuff like Al Qaeda etc. I'm talking about Russia, or China etc. Iran is so nothing.

arizona11912's picture

Hi EKM,

 

You are 100% correct. It is indeed a politcal project and this time it will succeed. There is a transition of internaitonal geopolitcal power from the USA to the EU. The whole Euro-zone project is being set up exactly the way its supposed to.  It goes in a series of steps: 1) Trade Union  2) Fiscal Union 3) Monetary Union 4) Political Union.

For the Euro-zone to work they had to invert steps two and three. Why? Would Greece or any other country joined the Euro-zone if EU Commisioners said; " Join my Euro currency but you cant run deficits and we have to monitor your fiscal budget to make sure your're staying in line." Of course they woudlnt have. But thats the kicker. Burn the bridges behind you as they move to a polititcal union. 

O by the way I'm selling preorder Euro-bonds. Come and get them!! Euro-bonds bitchez!! 

ekm's picture

Arizona

Thx for commenting.

In theory it looks like it's going to work. However, I recommend you go and live in Europe for at least 2 years. You might change your opinion.

oldman's picture

Hey ima,

They sure as hell will never let the US in the EU after this last twenty years of greater irresponsibility than Greece.

They did the due diligence but Goldman(american outfit, no?) led their Greek politician partners to a real PAYDAY

end of story                      om

goldan did the same here, btw

glass houses, bitchez