Wikileaks Exposes German Preparations For "A Eurozone Chapter 11"

Tyler Durden's picture

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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CPL's picture

Depends what you are trying to achieve I suppose and a profit is a profit even if it's a penny. 

bobert's picture

Blue chips with nice dividends paid really well between the headlines in October.

No recommendation mind you. (Always check with your own advisor:)

CPL's picture

Always DD first, just make sure you keep a SL in though as a saftey net.

Eally Ucked's picture

It looks like its your problem because all those stupid ZH-ers are in cash for long time. Play uor game!

cranky-old-geezer's picture



OMG THE FINANCIAL MARKETS ARE GOING TO CRASH AGAIN!!! Per zero hedge the markets are always one headline away from collapse

Hmmmm ..... I don't recall ZH ever saying markets are going to crash, not even close.

That's one thing I like about this site.  TD's (however many there are) just report the facts pretty much, maybe with some editorial, but noting approaching "crashing markets" that I can recall.

YesWeKahn's picture

As a matter of fact, it is one headline away from a total clapse. You'd rather be ready than supprised.

Sudden Debt's picture

Don't worry, this will never hit the mainstream media.
And if you're not invested in PM's yet, you're a moron.

The Deleuzian's picture

Don't be so hard on em' SD...More time to get more on the cheap....

CrazyCooter's picture

I have this little voice in my head (well, one of them anyway) that tells me the recent CME crap is a precursor to an epic commodities beat down. I do think Europe is about to implode. What better time to throw margin/traders under the bus, collapse positions, so the big boys can back up the truck and take over huge portions of the long positions.

But I don't trade. Oh, and it started snowing here the other day ... still nice out (mid-30s) ... snow almost gone for the rain ... mountains sure were pretty with the light blanket of snow ...



Sudden Debt's picture

I totally agree, i'm hoping for.
I'm not going to short it but if it goes below 26 i'm buying every slv call 40 2014 i can get my hands on.

fnord88's picture

I hope you're right cooter, starting to get worried that I should have gone all in at $1550 (Aus).  I also have to worry that even if there is a beat down, the aussie dollar will nosedive at the same time, so Gold will actually go up.

CrazyCooter's picture

The beat down, if it is really what is in the "cards", will be epic and the last chance to get physical (if dealers will sell at the new low prices). This is only driven by the need to dump shorts accumulated to date in price suppression. Smart dealers will just, um, well, you know, have inventory issues for a while.

I could be completely off base, just my "inner voice" per up thread. I prefer dollar cost averaging whilst I have the free money.

I looked at Australia when I was ready to pack-and-go. Good country over all and I think pretty solid. I also like New Zealand, perhaps more if I must confess. I do think your dollar is going to get a beating though, housing is still bubbly in your neck of the woods and international trade is about to tank as currency wars get going. But then, all currencies are going to the moon, so that makes you a hell of a trade with such commodity backing your currency!

Hope you got a safe hovel for the ride!



bobert's picture

Keep listening to that particular voice. It's a winner!

msmith's picture

After another highly anticipated weekend of headline risk, not much happened.  We are likely to see a bit more "risk off" price action to open the trading week.  Then we may see price action take on more risk as the week advances.  Here is a look at the DX, EURUSD, GC, SI, and the SPX.

css1971's picture

The Germans and French banks are only part way through their asset dumping so expect bond yields to remain high for a while.

I.e. Stocks go up.


island's picture

Bill Still:  Still Report #30


I'll be voting for Bill Still in 2012.

navy62802's picture

Didn't know he has a regular show. MoneyMasters seemed pretty good.

island's picture

Note: He has announced his candidacy for the Libertarian Party nomination for Prez.

island's picture

Forgot to note this is Bill Still talking about Greece and giving his guidance.

JW n FL's picture



Let all the Haters of Truth come out and Bash Julian!

ALL of you fucking scumbags who pray this system will never end..

ALL of you bottom feeders who just want to enjoy the spoils of your life long frauds committed against your fellow man!

Come and regale us with how the truth is a terrible thing and should be spun!

Tell us how B of A never got released! when Julian said "U.S. Bank" NOT! B of A!

Come and entertain us with your spin!


We do NOT!! Forget!

Expect! US!!


MsCreant's picture

I remember that, and then everyone ran with it that it had to be Bank of America. There were some emails...but they were not as delicious as we had hoped. But yeah, I buy that, the intial "tease" was about a US Bank.

Mr Lennon Hendrix's picture

You have a good was so long ago we last heard from Julian.

seek's picture

Actually it was pretty clear it was BofA, but the reason the docs never got released is because another wikileaks volunteer intentionally deleted them before leaving the organization.

In theory this was due to in-fighting within wikileaks, but there have been alternative explanations as well.


CrazyCooter's picture

I really see WikiLeaks as an official vehicle of "government agencies" to break news and influence public opinion.

J. Assange is a ego maniac and is thus easy to influence/control. <yawn/>

I do not contest the validity of the material, I just question the "leaky-ness" of its source.



john39's picture

wiki leaks was outed as an israeli operation a long time ago.  I agree some of the materials are interesting, but must be taken with a pound of salt.

jcaz's picture

Buh-bye, Adolf....

taraxias's picture

I stopped reading after "in twenty years time"

CrazyCooter's picture

Yeah, when I hit that point I was like ... is this content 20 years old? LOL!



zippy_uk's picture

Actually I am sure the main stream media hit this story quite a lot - DIE,DIE,DIE!

Last thing that big corporate media wants is the general idea that generally many corporations are bankrupt, especially banks.

"Whats the revinue implication of this ?"...

WestVillageIdiot's picture

Having worked for a family owned company this seems to be the same dynamic that you would see there.  The kids can fuck up, fuck up, and fuck up some more but the guilty daddy has to prove he still loves his little fucking losers and bail them out at every turn.  Then he makes sure to always say publicly that the worthless little fuckers are "doing better" than they have.  That is unitl their next major humiliation of the old man.  It keeps going until the old man is dead or the kid's have bankrupted him. 

MsCreant's picture

I've seen this very show in more than one family. Know the script.

CrazyCooter's picture

I read a long time ago that there is a "Chinese Proverb" that goes something along the lines of "Family wealth never spans three generations."

I probably mis-attributed the source, but I though it was very insightful, accurate or not.



MsCreant's picture

It is a kind of stage theory:

Generation 1. Has seen hard times, works hard, saves, wants to see kids do better. Very conservative.

Generation 2. Prospers, enjoys fruits of parents saving, not as conservative, endows their own kids with lots of goodies but does not pass on much of a work ethic. May even talk of how parents were too stingy and they won't do that to their kids.

Generation 3. No work ethic, blows all the money, has no endurance or fortitude, crashes financially. Their kids have no legacy except their memories of the crash.

Generation 1. Has seen hard times, works hard, saves...

Mr Lennon Hendrix's picture

I think the only reason that the European Aristocracy got away with keeping their generational wealth was because they became and stayed inbred, thus making themselves so retarded that all they could think about was preserving their precious.

Tuche, Euro retards.  Tuche.

CrazyCooter's picture

Naw. It is calories and entertainment. Shit, Rome had that one figured out 2k years ago.

When things get interesting is when the food and fun spigot gets shut off ... you know ... like when trade collapses ...



Eally Ucked's picture

That statement is really retarded. Are you retarded too or just drunk?

Mr Lennon Hendrix's picture

Look, the Rostheschildes, and other Aristocrate families, have kept their wealth and are retarded.  What is wrong with me saying that?

CrazyCooter's picture

Um, this is sort of awkward, but I almost posted the exact same thing, but thought "naw, he's just trollin".

That said, I don't think they are "in-bred" per se, at least in the literal sense. Let me put it another way. I used to tell folks (and still do although I keep my mouth shut more these days) there are two ways to be wealthy:

  • (1) hire a lot of people to work for you
  • (2) choose your grand parents wisely

I never admitted the latter passes genetics and no one called me out on it. I am crazy smart because of my blood line; my mom was rearing kids and earning a masters in economics in the 60s. That is bawls right there. My old man is sharp as a tack. I had great support growing up, great role models, and enough ass kicks to make me self sufficient.

With all that said, I have no idea what its like growing up in an "old money" family, but I am sure it sucks. I am also sure if I had no soul and basic competence, growing up in said "old money" family, I would get a shot at running systems far bigger than I could create.

But I knew kids in HS that had nice mustangs. Most ended up horseshoe-ing trees.

Call me a red neck, but I think I know where this is going ... and I am in 100% agreement, mayhap for different reasons, with MLH.



Mr Lennon Hendrix's picture

The Rotheschildes intermarried into the 20th century.

Hulk's picture

You should watch this documentary MsC

wealthy families coached on how to maintain wealth throughout the generations...

traderjoe's picture

I don't have a problem with wealth per se. It's how it's accumulated. And very few non-banking, non-oil families can maintain inter-generational wealth.

And I'll take a rich domestic manufacturer over a parasitic banker any day of the week.

Yen Cross's picture

 Hulk, Thanks for your comments.  Happy Thanks Giving . yen.  


   Just in case we don't speak before the end of the year.

MsCreant's picture

Took a look at it. Brave of the youngster to do it. Like how their financial advisor about had a crap over what the kid was doing. "Don't kill the golden goose!"

my puppy for prez's picture

Unless your family is a criminal bankster or Royal!!

MsCreant's picture

Most of those Dads will never, ever, see that they are the Dad that did this. The fact that they can't see it, enables it.

sabra1's picture

NEW YORK (MarketWatch) — The French government will on Monday announce its latest efforts to bring its finances under control, with a new package of tax increases expected to be unveiled.

GoldmanSux's picture

Is that for real? because Germany just announced a tax cut today.