A Shift In European Sentiment - Is Germany Prepared To Let Greece Default?

Tyler Durden's picture

Something quite notable has shifted in recent weeks in Europe, and it originates at the European paymaster - Germany. While in the past it was of utmost importance to define any Greek default as voluntary (if one even dared whisper about it), and that the money allocated to keep the Eurozone whole would be virtually limitless, this is no longer the case. In fact, reading between the headlines in the past week, it becomes increasingly obvious that Greece will very soon become a new Lehman, i.e., a case study where the leaders are overly confident they can predict the outcomes of letting a critical entity default, and manage the consequences. Alas, this only proves they have learned nothing from the Lehman case, and the aftermath is still not only unpredictable but uncontrollable. But that's a bridge that Europe will cross very shortly. And what is truly frightening is that this crossing may happen even before the next LTRO hits the banks' balance sheets, thus not affording Euro banks with sufficient capital to withstand the capital outflow and funds the unexpected. In the meantime, here is UBS summarizing the palpable change in European outlook over Greece, and over the entire "Firewall" protocol.

The German government seems uneasy about the firewall discussion. Some German media recently carried stories that a 'super rescue umbrella' would be agreed at the next summit on 1 March, amounting to €1.5 trillion, a number arrived at by adding up the €500bn of the ESM, the €440bn of the EFSF (though only about €250bn remain available) and the $500bn that managing director Lagarde has been seeking in additional financing for the IMF. There is a sense that trying to impress the market with a large number may once again backfire as analysts would quickly shoot down in any such attempt, for example by arguing that the IMF money would not actually be earmarked for the Eurozone, or more seriously maybe, that countries such as Spain and quite possibly France may come to be seen as unable to contribute ever more rescue funds. Instead, it is felt that the preferable option may be to point out that the ESM will be a much better designed and effective instrument than the EFSF, and that €500bn is enough for the problems at hand.


One gets the sense that the German government is not a priori unwilling to commit more financing to crisis management, but not now and only if it becomes clear that really the existing funds are insufficient. Also, there is a view that the government may at times have listened too much to advice from market sides, which then led to initial positions that subsequently needed to be revised. For example, bank recapitalisation was mentioned as something that ultimately seems to have done more harm than good and is now widely criticised for accelerating deleveraging. Also, the insistence that any Greek restructuring had to be 'voluntary' initially stemmed from fear of upsetting markets, but has now come to be criticised as having serious adverse implications such as undermining the sovereign CDS market. As a result, the German government may now be more inclined to stay firm on the firewall discussion and insist that €500bn for the ESM is sufficient for now.

While this step was inevitable from the beginning, what also was inevitable was the fact that leaders would be forced to exude confidence over what happens next. The truth is that they have no idea. Because if Paulson was proven 100% wrong in under 5 days following the Lehman default, when the money markets broke and the Fed has to literally force a bailout of the global financial system, what can one say about two bit second tier politicians from Europe, who have never even seen a DCF model?

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achmachat's picture

If you know Jean-Claude Juncker, you know that the very fact of talking about a Greek default, means that it's already been decided as an inevitability.

Snidley Whipsnae's picture

ZH... "it becomes increasingly obvious that Greece will very soon become a new Lehman, i.e., a case study where the leaders are overly confident they can predict the outcomes of letting a critical entity default, and manage the consequences."


The unwind of Lehman is ongoing with no estimate of completion.

Lest we forget, Kyle Bass was on ZH a short time ago and predicted that the holders of Greek debt will experience a 100% loss.

Of course, this will not trigger a CDS event... ;)

MsCreant's picture

"Of course, this will not trigger a CDS event... ;)"

Yeah, instead it has triggered a bunch of Euro-crats getting together for lots of small parties, constantly. But not really an event per se.

Ghordius's picture

MsCreant, our EU-crats are quite comptemptible creatures, little paperpushers and burocrats that don't cost much.

If you want to join the parties, you have to go to Washington, DC.

MsCreant's picture

I stand corrected. In any comment I ever make G, please know that if I'm pointing a finger at you guys, I have 4 pointed at the US. I am not a random Euro basher for bashing's sake. I make fun of everyone equally (including my self).

You guys did have Bunga Bunga at your parties, but I guess you need Barney Frankfurter to put together your "events." Barney has arranged for events with Fannie and Freddie...

Ghordius's picture

;-) I merely wanted to point you to the better parties!

Bunga Bunga, by the way, is a tradition in Italy, it goes back to the times of the Borgia Papacy. But they are private parties. Private like in "oligarch's".

littleguy's picture

What planet do you live on Ghordius? Eurocrats cost a fortune to maintain. Van Rompuy earns more than the president of the USA! Case in point. They drive the freakin' parliament to Strasbourg where they have another one every month just to satisfy the vanity of the French! It's a joke. Always was and always will be. Thankfully not for much longer. Bring it on and let's start again. 

He_Who Carried The Sun's picture

Letting Greece slip into default would be a VERY bullish thing.

Think about endlessly nurturing a Greek state in which more than 80% of its population do -at least in part- not pay their taxes.

You cannot ask a German taxpayer to do that! If the Greek hate their country that much, why should others care?

And why now? Because LTRO's have refinanced European banks sufficiently and contagion risks from Greece have become minimal. The ball was thrown back into Greek hands. The only problem is, that the Greek are to slow to realise that their affairs don't matter much anymore.... ;-) 

Write downs have been applied to all Greek positions to a great extent (somewhere in the 90% area) already and much faster than anticipated in spring 2011, so its become cheaper to let them go now and I'd happily join those you enjoy saying: Bye bye!


Snidley Whipsnae's picture

"If the Greek hate their country that much, why should others care?"

Simply because many Greeks don't pay their taxes does not mean they hate their country.

The 'people' always follow the lead of their leaders. If the leaders lie, cheat, steal, don't pay taxes (like little Timmy G) then the people will follow suit.

Corruption at the top always leads to a corrupt populace... Coming to a soverign near you soon.

He_Who Carried The Sun's picture

They elect whom they deserve, and THAT's coming NEAR YOU very soon, so better think about what you're saying....

StychoKiller's picture

The time is coming when everyone in the USA will have to choose between doing what is easy (voting for the Republicons/Decepticrats), and what is right (voting for Ron Paul).

Snidley Whipsnae's picture

If you believe that who is elected in the US, or Greece, has any bearing on the quality of leadership received in Greece, or the US, then the silicone implants in you're avatar have more brains than you do.

Regardless of who is elected, with the possible exception of Ron Paul, the bankers will still be pulling the strings in DC.

...and, it is not 'coming near me', it's already here and has been for a very long time.

He_Who Carried The Sun's picture

If you insult my funbags once more, I'll zip IT UP for ya... wanker!

Snidley Whipsnae's picture

The good part of you 'zipping it up' is that it's so short you need not be concerned about getting it caught in the zipper... wanker.

He_Who Carried The Sun's picture

Short?  *lol*

I am so sorry for you, then I must decline.

I only take big and strong, so keep on wanking...

djudy003's picture

Yup, not to mention s&p @ ~1400....... The idea is, will the LTRO, the latest QE3 anticipation rally and the soar ears of everyone from hearing about an imminent Greek default be enough. Or will the Politicians be wrong again and let Greece go only to scramble to hold up the other PIIGS up at any cost. ...

number cruncher's picture

Letting greece default is the worst outcome, its not bullish at all, thats why they have been desperately trying to avoid a default... especially as the market gorged on th elatest LTRO with the junkiest of collateral that would result in one mother of a margin call when the collatral loses value due to a sovereign shock or cds daisy chain...grab the popcorn and watch the sideshow unfold into the main event and make sure youcare ready to go very short on the risk that has beeng gobbled up from the pigs at the trough.

pkea's picture

told you last week germany is done with them but that's not even the major problem

RazorForex's picture

LOL Watch Greece Default and Euro rally like mad. In this bizaro world this would not surpise we one bit. Not one bit!

Ghordius's picture

that's quite exactly what I expect...

GeneMarchbanks's picture

It'll be short lived if it happens as the Socialists rise like the Phoenix in Portugal...

Ghordius's picture

yes. well, for some Portugiese like our dear ex-Maoist Barroso the Socialists are practically bourgeouis...

MsCreant's picture

They just want to wear us out so that by the time it really happens we won't give a shit. It will already be "priced in." Where's that amazed troll guy who says, "It's boring?"

Snidley Whipsnae's picture

"Where's that amazed troll guy who says, "It's boring?"

Moved on to Portugal...

The 'still not boring' part will be watching what happens to the CDS owners ... Which will make the losses to Greek bond holders look like weak sisters.

Hey, this is great news for Corzine/MFGlobal... Finally out of the headlights and soon to be a distant memory... to all but those that got their asses handed to them.

akuacumen's picture

It would be to the benefit of the EU and Greece to just let them default. Greece can't sustain it's debt even with the haircuts and their economy is not going to improve any time soon, the EU can't keep throwing money into that bottomless pit either. Time to let go and let nature take it's course already.

atomic180's picture

Agree let the EU protect those that show the resolve and will to help themselves and devil what may those that dont.  

Ratscam's picture

The EU must be suffering brain damage from the record cold temperatures in Europe stemming from global warming .......pfff

falak pema's picture

If Europe freezes the world is HOT right now; in toronto +5°C!

djudy003's picture

Was watching french television yesterday about how some people can not affored to heat their houses any more so they are cutting trees... I guess they should keep sticking up to Russia and see what it means to pay more for energy.

the tower's picture

Your statement is correct. As global warming creates extreme weather patterns there will be more periods of sudden heat, cold, rainfall and draught. If you thought that global warming just gradually warms the planet than you have not been reading anything else than FOX headlines...

Jefferson's picture

The sudden vertical drop in the financial markets when Greece defaults will truly be a shock and awe moment delivered by the globalists.

HoofHearted's picture

And some of us have just loaded up on FAZ for such a moment...

Zero Govt's picture

i doubt the markets will budge an inch from the latest announcements of political posturing

why should a telecoms provider or wheat farmers shares move because some tossers in Brussels want to write-off Greek debt?

If anything moves it'll be bank shares... but even they're 'cushioned' with a €1 Trillion ECB bailout (socialism for the inept)

Politicians do not move markets... quite the reverse in fact 

Jefferson's picture

So I guess Paulson's decision to pull the plug on Lehman was a non-event that did not move the markets. (sarc off)

slackrabbit's picture

This stuff is getting to be a joked about on mainstream TV, so the end must be near.

battle axe's picture

They should be close to ring fencing the German banks, as soon as that is done, bye bye Greece, hello Drachma...

MsCreant's picture

"Hello Drachma" may mean "Hello Greece."

battle axe's picture

Christ, at this point lets get this done with, one way or the other. I would be interested to see what happens if Greece actually does default. I have a sneaky suppression that not a whole lot will happen. The French/Germans have been buying time to fortify their own banks against this. So let the Experiment begin...

Nachdenken's picture

13.11 CET Sarkozy has asked for the setting up of a central bank account for all Greek revenues that will be used to pay off Greek debt.  The external control fantasy restated.  It is a very close call for now.  The end is the same, a different time frame, and each partuicupant races to protect its bit.

agent default's picture

No, it's a game of chicken.  It's so old by now that it is not even funny.  Just sad and boring.

AnAnonymous's picture

You have to love can kicking games to enjoy this one.

Why not take bets on how long the wait is going to last to spirit up bored US citizens?

papaswamp's picture

Absolutely...let them default and stay in the Euro...The Euro plummets in value...German products become even cheaper. German manufacturing wet dream....it may have been the plan all along.

Sandmann's picture

German products become even cheaper


Incomprehensible. This logic makes Bangladesh one of the richest countries on earth. To have Demand it must be EFFECTIVE which means people have to have jobs and access to credit and banking systems. Just how defaulting on Debts gives access to buying more imported goods is not clear to Non-Americans. No doubt all those people living in tents in California and having homes foreclosed are simply looking to trade up to new homes in better neighbourhoods !

GeneMarchbanks's picture


Sadly common sense and logic are on their way out being supplanted by economic theory.

Ghordius's picture

gimme another break. China trashed the first paper currency even before the Great Mongol Hyperinflation. Paper is a Chinese Invention.

There is no country that had so many hyperinflation as China, courtesy of the longest recorded history of the world.

AnAnonymous's picture

I suppose that Chinese had the decency to keep their inflation crisis for themselves.

How many of them have they exported?

Maybe one at the end of the 16th start of the 17th century...

Save that, I have no trail.

Contrary to US citizens who made a national sports to export their issues onto others...