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Instead Of Relenting To Demands To Let ECB Print, Germany Is Preparing To Kick Countries Out Of Eurozone
It's official - Germany has become just like China (or, rather, has always been like it): the more it is pushed to do something (let ECB print), the more it will do the opposite. Half a year ago we discussed that the weakest point of the European bailout language was its reliance on Collective Action Clauses which imply that any resolution which does not have 100% backing of all bondholders would potentially push a country into default. In essence, this took control out of the hands of the Eurozone head, Germany, and put it to the bondholders. Well, according to a preliminary draft released by the Telegraph and FT, as part of the new bailout 'indenture' contained in the ESM, "under a section headed “The establishment of a procedure for an orderly default as part of the ESM”, Berlin makes clear that countries which are deemed to be insolvent – rather than just suffering a temporary loss of access to the financial markets – would be allowed, in effect, to declare bankruptcy and default on their bonds: If [a debt sustainability review] is negative, the affected member state would instead receive loans for a limited time only, during which the procedure for an orderly default would be prepared. In order to make sovereign defaults possible where they are unavoidable, the threat of instability in the financial system resulting from such a default must be able to be credibly excluded. A plan to maintain the stability of the financial system in the event of an orderly default needs to be developed in close co-operation with European banking regulators. This would determine which banks would be restructured and/or recapitalised, which will necessitate the drawing up of Europe-wide rules on bank restructuring." And as we discussed previously, the voluntary language will likely be taken out from the final draft, effectively giving Germany the unilateral ability to kick countries out. Which explains why the market is about to plunge: according to just released information from DPA, "the German Foreign Ministry on Friday confirmed that Germany was considering the possibility of more eurozone "orderly defaults" beyond that of Greece, as suggested by a paper leaked by the British press." In essence, what this means is that instead of relenting on the ECB issue, which as every investment bank has said would be the end of the world unless massive printing is permitted, Germany would rather kick countries out of the Eurozone instead of entering a hyperinflationary collapse. Perhaps it is now time for the banks to start toning down their language on the imminent destruction that would ensue if the ECB does not print, as this is apparently not happening...
Our friends and rivals over at The Daily Telegraph have gotten their hands on an interesting document from the German government detailing its proposals for EU treaty change, and have helpfully posted it online (with an English translation by the Open Europe think thank).
Although the Telegraph focuses on its implications for Britain, there is a significant amount of detail on how Berlin would like to change eurozone economic governance, including yet another stab at enshrining bondholder “haircuts” in the EU treaties.
For those who haven’t followed the debate closely, there is now a closed-door fight going on about whether Greece really will be the only country that sees its bondholders pushed into losses – as the eurozone’s leaders have repeatedly insisted in their summit conclusions – or whether the bloc’s new €500bn rescue fund, which could come into place as early as next year, should allow for organised defaults.
Why is this a market moving event?
When broader default powers were mooted for the ESM at this time last year in a much-discussed agreement between France’s Nicolas Sarkozy and Germany’s Angela Merkel in the French seaside town of Deauville, bond markets swooned, sending Ireland and then Portugal into bail-outs. Days later, during a G20 meeting in Seoul, Merkel was forced to back down. But the issue clearly hasn’t died.
In other words, while everyone believes Germany has been boxed into a corner and has no choice but to relent on global demands to let the ECB do whatever France demands, Germany was making other plans all along. Such as having the opion to kick France out of the Eurozone if and when it so chooses.
Because after all, money talks. And in Europe, only Germany has the money.
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What the Germans are suggesting is a path to restructuring of debt, which they'll suggest the EU take over the country and reorder their governments. That's a proposal for a pan-European government. Default and leave the euro and risk collapse or bow to a new pan-European government. It's obvious this "crisis", which is really a slow motion bank run, is being used and stoked by the desire to create one European government. This has been their golden child for 40 years. This is their chance.
There is quite a bit of scuttle-but in the German Press about a smaller "Core" Europe that is supposed to revolve around a France-Germany axis... but how is that supposed to work if France's banks are in as bad a state as Greece's or Italy's???
If the "core" Europe is relegated to those nations that can be reasonably considered solvent we will witness a resurrection of Hansa Teutonica – a very exclusive club indeed!
This is from the latest from Der Spiegel about France's understanding of what Germany's role in a redefined Eurozone is to be: http://www.spiegel.de/international/europe/0,1518,797626-4,00.html (it takes a while to load)
'Germany Has to Pay More'
In France, the country whose people already voted down the EU constitution once before, the sovereignists are traditionally strong. They are in favor of Europe, but only as a means of expanding French self-aggrandizement, not as a way of limiting it.
There is much talk in the French media about the "saut fédéral," or leap into federalism, which is intended to rescue the euro zone. But in France, federalism has a different meaning than in Germany. Socialist Hubert Védrine, one of the staunchest sovereignists, warns against misunderstandings. According to Védrine, the French definition of federalism is "that debts are communitized and Germany has to pay more."
Yeah - like that is going to work for the long term!!!
Man - history may not repeat itself, but it sure does rhyme. There is a German expression to the effect that having a Frenchman at your side is like having a thief at your back. While the rest of Europe rushed to the Hapsburg’s defense to rescue Europe from the Ottoman scimitar, France seized the opportunity to wrest ill-gotten territory (Alsasce and Lorraine) from the Germans who were otherwise engaged in Vienna.
German disgust for France is visceral and in their DNA! I always had the impression the Germans only participated in this Euroexperiment merely as a perscribed purgative of all-too recent history.
I will repeat my bear trap alert again. Bear trap. Bear trap. Cover. Cover.
Third attempt to break up through S&P 1220 again today after the initial plunge below that level.
If the third time isn't the charm, then I think you see EPIC FAIL and a nice visit with 1190 by day's end.
1220 broken. 1230 coming now.
Doubtful. The credit markets still suck.
Credit markets do not matter when HFTs have millions of known short stops to ram through.
Heh, heh. Don't tell me. A trapped long:-)
The North will not be able to buy their boats, villas and many other accesories in the Greek Isles and southern states if they actually go down to their level.
They need their Mexico, just as the USA wishes they had not fucked up theirs.
Hm. While this is compatible with Germany deciding to hold the line on ECB monetisation, it's also compatible with Germany preparing to fold on the issue. The more Germany looks as if it really might block the money-printing, the better the /quid pro quo/ it will likely get for finally agreeing to it. And once the deal is done, Germany still needs some kind of credible or at least half-credible threat to say "enough" and end the printing in order to keep Italian etc. reliance on debt monetisation from getting out of control.
Bravo sir, for your understanding of politics.
Alexander Cockburn
I understand that Germany is building special camps where defaulting banksters will be sent for re-education. Once suitably re-educated they will be employed as porters in public restrooms throughout the Reich - er, country. By the way, TSA is consulting on the project.
It is obvious that the Germans want Merkel to be encouraging just enough so that the markets don't tank while at the same time they appear to be supporting defaults. Go Germany Go! As Kyle Bass so elegantly stated in his latest interview,
"Capitalism without bankruptcy is like Christianity without hell".
Somebody in Germany respects market forces far more than they do here in the US. The Germans realize, having been there before, that there is simply to much bad debt in the system and a large portion of it needs to be cleared so that the world can begin moving forward.
So you agree that USA should default?
I agree that the bad debt that is gumming up the US banking system should be dealt with and that our leaders in Washington should do their jobs and start making decisions that will benefit the economy over the mid to long term. This entails a huge reduction in the debt levels and the size and scope of our government. I want every business that is being falsely propped up by accounting gimmicks, the Government, the Treasury or the Feds to be allowed to fail if in fact they should. All the players have had ample time to repair their situations. Let the market decide the winners and loser's, not some government policy, accounting gimmick or Fed. policy.
Everybody thinks that America is to important to ever experience what is happening in Europe. Let me assure you of one thing and that is that the people behind the money care about two things and two things only and that's capital preservation and capital appreciation. The people in Europe are in essence voting with their wallets (capital). The world is going along with the US because it is the less ugly of the alternatives only until a better alternative arises.
I think Germany is attempting to "manage" the default that is coming, or buying time to better cover their asses, which is admirable, but it won't work because the market just quits negotiating when it finally reaches "that" point. Collectively, they will head for the exits at the same time. The early birds are already getting out.
Only one question Sports fans - won't Germany walking away ensure those "non-credit event" CDS to trigger? Isn't that really what everyone should be afraid of?
It is good to see the Germans will not cave in to pressure, and have actually learned from the mistakes of history and insist on NOT repeating them today. Unfortunately, the US is too arrogant and not so wise when it comes to applying such reasonable logic. I'm not bashing the US, I'm an American, but it is absolutely true.
I've read elsewhere that there is no rule in the EU agreement that allows countries to be "kicked out" of the union. They have to leave voluntarily.
that's right. that's why they want to change the treaties. nicely written out back then, not?
Finally some good news. I will be looking with interest at the buying opportunity in stocks of Greece, Italy , Spain etc, when the RIGHT thing has been done. Unlike the idiots in Brussels, investors are actually WAITING for the inevitable to happen and then this will be the time when floodgates of investment will be opened. The way out of this problem, is DEFAULT, SHORT BUT HARD RECESSION and then bounce back with a budget in slight surplus while cutting taxes hard and broadly.
This is about consolidating the political power of the ECB, which is headquartered in Berlin.
Next step - a "universal" pan-Europe tax collection agency - also based in Berlin.
How to get the BIS???
Welthaupstadt Germania - bitchez.Huh?
ECB is headquartered in Frankfurt am Main.
wow check this out zerohedge- http://twitpic.com/7fumje
Germans don't like being slaves. Germans don't like being debt slaves. Germans refuse to be debt slaves, especially when foreigners and bankers are the ones actually creating the debt. "Ich bin ein Berliner"!
Romans never got hold of Germanic tribes. They simply refused to be servants or slaves.
So far no country has succeeded in standing up to the bankstas. Who's backing the proposal, I wonder?
not sure why they just don't leave themselves. that's the easiest
bankruptcy is the tonic to cure financial cancer and is the antidote to the squid's implaccable choke-hold on the body politic....
bankruptcies are long overdue for countries and companies...and recapitalizing a bank with incompetent management is not a solution for anything but more failure.
Money talks, Bullshit walks...
Duetchland should just kick itself out! Let them fuctards keep the Euro
Bring back the DM!!!
I don't know how but when I gave MBD a red arrow,it went throgh and gave him a green......
WHAT THE FUCK,
SOME HOW THE FUCKER HAS HIS COUNTER RIGGED....
Its most likely a Tyler, he is always at the top of the comments, not top but close enough.. That does not diminish his utility as a satirist, I love it when he pulls in the unthinking keynesian krugmanites, classic..
Wow, what fun watching the collapse of an unsustainable system.
It is fiscally impossible to pay more people to not work, than to show up and do the millions of tasks required for modern life.
Food stamps, free rent, free college, free pensions and "free" health care are completely unsustainable, impossible notions. For those that are paying attention, you might notice that these ideals haven't even been able to survive two full generations before going belly up.
The West is BROKE. Done. Stick a fork in us.
We sit in our world of comfort and 24 hour entertainment, trying vainly to believe that we can "fix" problems larger than the entire world's gdp.
What a joke.
Amusing to watch, will be a bitch to live once the chickens firmly come home to roost.
And, in my heart, I know Germany is making decisions with eyes turned back to post WWI. They have been waiting a lonnggggg time to screw France like France screwed them.
Fiat on.
Speaking of chickens I left 5 eggs in the coop this am, see ya later..
I'm confused, I thought the purchases by the ECB everyday buying Italian bonds is printing money? If its not how money do they have sitting in their account?
Hehe.
U need to take macro econ 101.
They essentially have as much money as anyone wants to borrow, or with their captive banking system, as much as the ECB tells them to borrow.
Also read up on sterilized "open market" interventions.
TeresaE;
I agree with you, but fear that your assessment is wrong.
The political and financial world has tied itself into a giant Gordian Knot during the last 20+ years. Europe, Japan, China, USA and MENA (through oil revenues and investments,) are so interwined that a small failure for one of them, will bring disaster to all of them. Look at the proposed Greek haircuts as an example. There can be no defaults, voluntary or otherwise.
Everything that can be done to perpetuate the current worldwide, debt based system, will be done with the wishes of individual voters be damned.
http://www.oaktreecapital.com/MemoTree/It%27s%20All%20Very%20Taxing%2011...
hmmm ... I must be missing something. I read it a bit differently - I think Germany is saying broke countries should be allowed to go bankrupt without breaking the system. They are not saying that countries should be kicked out of the Eurozone. maybe I'm dense, but I don't see why a sovereign bankruptcy would necessitate leaving the Euro.
They dont have to leave but it is assumed they will.
A bankrupt country with no control over interest rates or money supply will suffer continued deflation and misery staying in a currency they cant control.
Interest rates set for the zone as a whole will be too high for a post bankrupt deflating economy and will make the collapse worse. Any country going bankrupt will redenominate and devalue.
So Germany, drops all countries to south and west of Swiss Alps, adds Russia.
Reminicent of the saying, " Asia starts east of the Rhein."
Germans are tired of Uncle Sam's finger up their butts from what I see.
The two countries where students laughed at Timmy were Germany and China.
Interesting stuff...i don't know what ot make of it.
We will see who has the last laugh
Easier is for GERMANY to exit itself from the Eurozone. Germany can quickly return to a stable DM and the Euro will be free to devalue to hyperinflate the debt away. Smart is for Germany to exit.
Only Germany has the money... now. This is the way that sentence should read. But after the Chinese economy goes into recession and China stops buying all thing German, the creating of the Fourth Reich will collapse like the house of cards that it is. And Germany will go back to being the sick man of Europe. And that is the way this story will end. Oh and finally, Socialism es muerte:-)
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Germany: Do yourselves and the world a favor. Exit the eurozone and euro.
Nobody understands the german psyche like porn watchers.
Their desire to suffer and cause suffering in the search for orgasmic bliss knows no bounds.
German fetishist is an oxymoron.
We who understand germans through their porn knew all along it was going to be "submit or be punished, bitchez"