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Wikileaks Exposes German Preparations For "A Eurozone Chapter 11"

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The following cable from US ambassador to Germany Philip Murphy ("Ambassador Murphy spent 23 years at Goldman Sachs and held a variety of senior positions, including in Frankfurt, New York and Hong Kong, before becoming a Senior Director of the firm in 2003, a position he held until his retirement in 2006") "CONFIDENTIAL: 10BERLIN181" tells us all we need to know about what has been really happening behind the smooth, calm and collected German facade vis-a-vis not only Greece, but all of Europe, and what the next steps are: "A EUROZONE CHAPTER 11: DB Chief Economist Thomas Mayer told Ambassador Murphy he was pessimistic Greece would take the difficult steps needed to put its house in order.  A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time.  In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider."  Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order.  Unfortunately, there is no serious discussion of this underway, he lamented." This was In February 2010. The discussion has since commenced.

Full cable, created on February 12, 2010, presented with no comments, and just the occasional highlight, as all of what Germany is really saying has already been said by us as well.

C O N F I D E N T I A L SECTION 01 OF 03 BERLIN 000181
E.O. 12958: DECL: 02/12/2020
¶1. (C) SUMMARY:  Chancellor Angela Merkel's government welcomed the decision taken at the EU's February 11 informal summit in Brussels not to provide financial assistance, for the moment, to cash-strapped Greece.  German officials believe a bailout is not needed at this time, and that extending a lifeline to Greece would have carried too many risks.  One major fear in Germany is that "saving" Greece would lead to other needy Eurozone members expecting the same treatment.  Another concern is that extending an explicit guarantee for Greece could weigh on Germany's own good standing in the markets, ultimately raising its borrowing costs.  While German government officials do not totally rule out an IMF program for Greece if push came to shove, most consider this eventuality highly unlikely, especially in light of the European Central Bank's strong opposition.  In fact, the German government, the ECB and private German economists are downplaying the seriousness of Greece's predicament and its potential impact on stability of the Euro.  They agree, however, that the crisis could have longer-term consequences for EU institutions and how they interact with member states that stray off course.  END

¶2. (C) Prior to the February 11 EU Summit in Brussels, there was much hair pulling in Berlin over the wisdom of participating in some sort of Greek rescue.  No one savored the idea of explaining to German taxpayers, already concerned about Germany's record deficit, that they would be footing the bill for the irresponsible behavior of another country. A Finance Ministry official explained to us that many Germans felt disgusted by the situation in Greece: "While Germans have spent the past decade tightening their belts and improving their competitiveness, Greek civil servants still earn 14 months' salary per year."  A recent editorial in the German daily Frankfurter Allgemeine Zeitung (FAZ) asked rhetorically whether Germans would need to work until age 69 just to finance early retirement for Greek workers.  With important upcoming elections in the state of North Rhine-Westphalia, bailing out Greece would not be a vote winner.
¶3. (C) The German government was, in fact, "relieved" that the European Council meeting on February 11 decided not to put concrete assistance on the table at this time.  Wolfgang Merz, Director for European Financial Affairs, German Ministry of Finance, told us that while Germany stands ready to throw a lifeline if the Greek government truly runs aground, Greece currently has access to capital markets and needs no outside assistance.  The key to overcoming the crisis will be the Greek government's implementation of the planned austerity measures, said Merz.  Bernhard Speyer, Head of Banking, Financial Markets and Regulation at Deutsche Bank (DB) Research, agreed that the EU struck the right balance: "The decision gave reassurances that Greece would not be abandoned, but kept the pressure on the Greeks by not yet putting cash on the table."
¶4. (C) Stepping in with assistance at this point carried too many downside risks, according to Merz.  Legal questions aside, a German or EU bailout of Greece might have harmed Germany's credit worthiness, thereby raising its own borrowing costs.  Merz added that a bailout would certainly have set a bad precedent for other Eurozone countries, such as Spain and Portugal, experiencing similar stresses.  (Merz acknowledged, however, that these two countries' problems were less acute -- a sentiment echoed by Speyer.)
¶5. (C)Still, there is some skepticism that Greece's austerity program will get the country's finances on the right track, even if fully implemented.  Merz said an IMF bail out remained on the table, despite the official line that the situation in Greece could be addressed within the EU.
¶6. (C) According to Karlheinz Bischofberger, Deputy Head of the Financial Stability Department at the European Central Bank (ECB), the likelihood that the IMF will be asked to bail out Greece is "zero."  Greece does not have a balance of payments crisis, so there is first and foremost no basis for the IMF to step in. Bischofberger added that apart from the damage to the ECB's reputation an IMF intervention would inflict, it was uncertain that the IMF could even succeed in doing the "political dirty work" of forcing Greece to implement a structural adjustment program.  DB Research's Speyer concurred, adding that [and IMF intervention] would undermine the credibility of EU institutions to manage a crisis.
¶7. (C) Talk of a possible break-up of the Eurozone is "absurd," according to Moritz Kraemer, Managing Director, Standard and Poor's.  He noted that Eurozone membership is still seen as highly desirable, and there was absolutely no incentive to exit, despite the allure of devaluation.  Any country that tried to leave the Eurozone would get hammered in the credit markets, exacerbating any underlying structural problems.  S and P estimates that Greece's rating in the case of an exit would drop to "BB " or lower, i.e. below investment-grade.  Even today, Greece's rating of "BBB " is higher than it was in 1997 ("BBB-") before joining the common currency. [ZH: HAHA]
¶8. (C) While the current crisis may have revealed an "Achilles heel" of the Eurozone, it may present opportunities, according to Klaus Masuch, Head of the EU Country Division, Directorat General of Economics, ECB.  The crisis is a "healthy warning signal" that Eurozone members must conduct "sound national policies in line with the agreed rules."  It also underlines the necessity of better integration and coordination of member state fiscal policies. 

The Euro will come out of this crisis strengthened, he said.

Better and stricter early warning and surveillance systems will be in place, and the Stability and Growth Pact will ultimately be reinforced. DB Research's Speyer agreed, adding that the crisis could make EU member states proceed more cautiously with enlargement.
¶9. (C) DB Chief Economist Thomas Mayer told Ambassador Murphy he was pessimistic Greece would take the difficult steps needed to put its house in order.  A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time.  In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider."  Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order.  Unfortunately, there is no serious discussion of this underway, he lamented.
¶10. (C) Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece.  Still, the German government appears prepared to step in as a last resort if needed and is cognizant that German banks (such as Hypo Real Estate and Deutsche Bank) and insurance companies (Allianz) have significant exposure to Greek sovereign debt.  The crisis is also viewed -- within the German government as well as within the ECB -- as a way to exert greater influence over the public finances of profligate Eurozone members.  Some Christian Social Union (CSU) politicians are even using the crisis to promote the candidacy of Bundesbank President Axel Weber as next ECB President, arguing that Weber's selection would send a signal that Eurozone stability is paramount. [ZH: Axel Weber was passed over for the post of ECB head and instead former Goldman staffer Mario Draghi was appointed] One way or another, the consequences of the Greece crisis seem likely to outlive the immediate situation.  One strong possibility is that German influence over policy in the common currency area will grow.


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Sun, 11/06/2011 - 20:36 | 1851630 ZeroPoint
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It's not that shocking frankly.

Of course they would leave under those 2 circumstances. Who wouldn't?

Sun, 11/06/2011 - 20:38 | 1851636 luna_man
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To be totally honest, I'm concerned about the global economy...But what really has me feeling nervous, is the thought of WWlll any day now!!



Sun, 11/06/2011 - 20:48 | 1851654 TraderMark
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14 minute video - 60 Minutes interviews Jack Abramoff on how "for sale" D.C. works...

Sun, 11/06/2011 - 20:49 | 1851656 bankruptcylawyer
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people on zerhedge cannot see past a default. this political turning will be at an end with the beginning of the next big war. 

that could take a hell of a lot longer than the next big default, which might be coming sooner or later.

Sun, 11/06/2011 - 21:07 | 1851694 bbq on whitehou...
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Germany: Ive teken all i can stands and i cant stands no more. -channelling Popeye the sailor man.

Sun, 11/06/2011 - 21:30 | 1851741 I_Am_
I_Am_'s picture

here a squid there a sqid every where a squid squid ............

is everyone in key positions a GOLDMAN associatd?.  Ambassador Murphy retired from............


Sun, 11/06/2011 - 21:47 | 1851757 devo
devo's picture

I think the best way to describe the market is as a figure 4 deadfall. That is, a precarious, leveraged trap ready to crush its victim.

(Those who've read the Army Survival Guide will know what I'm talking about)

Sun, 11/06/2011 - 22:11 | 1851761 SDRII
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Bradley E. Manning (born December 17, 1987) is a United States Army soldier who was arrested in May 2010 in Iraq on suspicion of having passed restricted material to the website WikiLeaks.


  • Anything after this date is not "wikileaks though it is apparently dated 2/10 just under the radar...
  • If wiklileaks is so interesting how about the releases about berlusconi and his closeness to putin.
  • Then follow it up with the taxes and bunga scandel timing.
  • Then dig into eni and the south stream project, among others.
  • Then  check the pink (anything but gold) paper story two weeks ago about  berlusconi running to putin bday party for friends.
  • Then go back and check the ForMin comments in the lead up to libya and the actual call for a halt to operations.
  • That happened right about the time of the US strategic stockpile release.
  • Lay it all out and then go back to the German cable. Nice setup for the cable with the gold story last week.
Sun, 11/06/2011 - 21:43 | 1851765 Yen Cross
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 Weren't those " Plagiarizing Bunnies", looking for a "  CASH " , infusion last week?

Sun, 11/06/2011 - 22:08 | 1851802 SDRII
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After Italy check out Japan politics - while the taxes havent sidelined Berlusconi they have sidelined Ozawa. New PM every year since Koizumi left in 2006


  • Mar 2009: Fundariaisng scandel,8599,1897252,00.html


  • Feb-10: Asked about his views on Japanese politics and what could be happening in the coming months, Ozawa replied - - after a disclaimer that his position does not allow him to comment on policy matters - - that the DPJ came to power in a short amount of time and was still a very young party. Therefore, Ozawa continued, the party has not yet been able to tap into its full capability to win support for both its domestic and international policies. However, there were many policy items that were included in the recent budget formulation process, which would have been unthinkable during the days of Liberal Democratic Party (LDP) rule and which will boost popular support for the DPJ if implemented, Ozawa claimed. That was why it was so important to pass the budget and related implementing legislation this March- -so that the public would begin seeing the impact of this new government prior to the July Upper House election. Although Japan's relationship with the United States was an important primary priority, the biggest issue for the DPJ as well as its greatest challenge was that the party be able to assert its own policies vis-a-vis foreign countries.


  • March 10: SK Navy boat sinks


  • April 2010: MAssive protests over US basing in Okinawa


  • Jun 2010: Nato kan elected PM beats Ozawa; Hatoyama wavers on election promises to move the busy base off Okinawa altogether.


  • Nov 2010: Korea hosts G-20


  • Mar 11: A top American diplomat, Kevin K. Maher, has been removed from his post after stirring outrage in Japan for reportedly belittling Okinawans, a State Department official said Thursday. The United States ambassador to Japan, John V. Roos, flew to Okinawa on Thursday to apologize in person to the governor of the island, said the official, Assistant Secretary of State Kurt M. Campbell. Okinawa hosts about half of the 50,000 American military personnel in Japan.


  • March 11: Japan earthquake


  • Oct:11 US building navy base on Korean island



Sun, 11/06/2011 - 22:12 | 1851808 chump666
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Italy's yield blow out is sending futures and Asia lower.  Tight.

Sun, 11/06/2011 - 22:16 | 1851816 Mr Lennon Hendrix
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And gold is up.

Sun, 11/06/2011 - 22:20 | 1851823 Yen Cross
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 Mr. Hendrix. No more chf or yen.  XAU is the last bastian of fear!

Sun, 11/06/2011 - 22:22 | 1851830 chump666
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f*ck yeah along with the EUR.  strange trading.  FX all over the place, Asia stocks acting nutso...really tight trading, only major leveraged players would be making hr to hr profit on this...very hard to find a position

Sun, 11/06/2011 - 22:18 | 1851818 chump666
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and now we have China issuing their Goldilocks call.  everything just went bid.

headline trading at it's finest. 

Sun, 11/06/2011 - 22:35 | 1851846 Yen Cross
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 Thanks for all the great comments and advice. Have a great trading week .  

Sun, 11/06/2011 - 22:32 | 1851842 PulauHantu29
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Is there anyone in any gubberment in a high level postion who did not work at The Squid?

Mon, 11/07/2011 - 03:42 | 1852256 Bear
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Mrs. Clinton was busy in Arkansas but never at GS ... unless Squid reaches to Madison Bank & Trust

Sun, 11/06/2011 - 22:47 | 1851863 chump666
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yo china

China's gaudy growth doesn't mean much to Xie Jun, who runs a factory in the southern Chinese boomtown of Dongguan. He's enduring a tough year.

His company makes and exports headphones, cell phones and computer accessories. It's paying 30 percent to 50 percent more this year for chemicals, fuel and other raw materials. Labor costs have nearly doubled.

Xie's customers are reducing orders, forcing him to lay off more than 10 percent of his staff at Dongguan Jincai Real Co.

"I just feel hopeless," Xie, 45, says. "It's hard to say if it will get any better next year."

yes, yes good ole Taiwan...droppin some truth

Sun, 11/06/2011 - 22:55 | 1851876 DaveA
Sun, 11/06/2011 - 23:22 | 1851904 chump666
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sh*ts hitting the fan on the EUR...

alright doom back on! 

Sun, 11/06/2011 - 23:44 | 1851960 jomama
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i predict a massive pummeling this week.

Mon, 11/07/2011 - 00:41 | 1852061 SunBlaster
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Mon, 11/07/2011 - 01:26 | 1852124 Gief Gold Plox
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"The crisis is also viewed -- within the German government as well as within the ECB -- as a way to exert greater influence over the public finances of profligate Eurozone members."

And people wonder why I hate politicians.

Mon, 11/07/2011 - 02:42 | 1852207 Bear
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Flash dispatch from German Ambassador home: "...stop ... Prepare for USA Bankruptcy"

Mon, 11/07/2011 - 02:57 | 1852226 wisefool
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Way to early. Kissenger met with Cain.

Mr. Nukes are everywhere, vs. taxes are nowhere.

Keynes would be proud.

In other news. Who wont Kissenger meet with?

Mon, 11/07/2011 - 04:46 | 1852289 steveo
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From the Alternate Reality the Soylent Green Pill

Asian Banksters invade Hawaii
Federal worker guns down Hawaii Resident protesting Asian Banksters
Highways and Public Areas shut down throughout the week as Banksters are zipped from one party location to another.  Hawaii Businesses greatly affected negatively.
Mrs Obama takes Air Force 1 to Hawaii to do some Green Washing whilst Banksters Party.
Business Hurt as their workers get called on National Guard Duty to protect Asian Banksters.

Think this is some weird futuristic movie?    Reality, right now.

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