Yet another datapoint that has been completely ignored by a market that not only does not discount future events, but is blind to current ones as well, is that, as the Guardian reported late in the day, Merkel threatened to abandon the euro during the EU summit in late October. Per the Guardian: "The German chancellor, Angela Merkel, has warned for the first time that her country could abandon the euro if she fails in her contested campaign to establish a new regime for the single currency." The paper goes on to further say that, "Merkel's central aim, which she achieved, was to win agreement on re-opening the Lisbon treaty so a permanent system of bailout funding and investor losses could be established to deal with debt crises that have laid Greece and Ireland low and are threatening Portugal and Spain. The Germans also called for bailed-out countries to lose voting rights in EU councils." And while this certainly means that Ireland will soon be left without a voice in any European discussions, much as we have expected, and under the thumb of one very corpulent and pathologically mendacious Olli Rehn, it also means the the Emerald Isle got the shortest end of the stick as it appears that future bailout will likely involve senior haircuts. But not so much in the Irish case, which may have been the last ditch effort by the multi-trillion impaired asset banking hydra in which as we showed first long ago, one's impaired assets, are another's leveraged extra-impaired liabilities.
More from the Guardian:
Merkel's central aim, which she achieved, was to win agreement on re-opening the Lisbon treaty so a permanent system of bailout funding and investor losses could be established to deal with debt crises that have laid Greece and Ireland low and are threatening Portugal and Spain. The Germans also called for bailed-out countries to lose voting rights in EU councils.
At the Brussels dinner on 28 October attended by 27 EU heads of government or state, the presidents of the European commission and council, and the head of the European Central Bank, witnesses said Papandreou accused Merkel of tabling proposals that were "undemocratic".
"If this is the sort of club the euro is becoming, perhaps Germany should leave," Merkel replied, according to non-German government figures at the dinner. It was the first time in the 10 months since the euro was plunged into a fight for its survival that Germany, the EU's economic powerhouse and the lynchpin of the euro's viability, had suggested that quitting the currency is an option, however unlikely.
Merkel's spokesman Steffen Seibert would not comment on her remarks today. But the threat, he said, was "not plausible. The chancellor sees the euro as the central European project, wants to secure and defend it and the government is not at all thinking of leaving it," he said. "Germany is unconditionally and resolutely committed to the euro."
And for those who think the European collapse has been averted, think again: the day of reckoning has at best been delayed by a few weeks (and that assume the European banking system survives December 7).
EU finance ministers are to meet again early next week ahead of the summit on 16-17 December. The mood in Brussels is febrile and there have been rumours of another extraordinary summit or session of finance ministers this weekend.
The summit in two weeks' time, said a senior European diplomat, would be preoccupied with the treaty change needed for a permanent bailout mechanism to be established when the €750bn fund expires in mid-2013. "The real question is, is there enough in the fund? If not, how much more do we need?" the diplomat added.
Also, wonder why Trichet spent a few billion euros buying up PGB bonds:
"Portugal will need to be saved. The big issue is Spain," said another senior diplomat.
Whether Merkel's threat will become something tangible is unknown. Keep an eye out on prices denominated in DEM in Bavaria beer halls for the best indication:
Diplomats, analysts, and officials generally agree that Merkel is right to focus on "moral hazard", insisting that the markets and not only governments and taxpayers have to share the losses if a eurozone country implodes. But her timing could not have been worse, they add.
Since the market could not care about anything besides how many nanoseconds a given collocation box frontruns everyone else by, we don't think her timing matters one bit.
In the meantime, the real action might, just might, come out of leftfield next Tuesday, December 7, when European, not nearly as lazy and easily distracted as their transatlantic cousins, decide whether they have the guts to end the Helsinki syndrome they have developed with their banking sector hijackers.