DAX Surges After Germany Unexpectedly Opens Door For Greek Debt Negotiations

It appears Germany is indeed very concerned about a Greek bank run and its concomitant contagion possibilities across the European Union's banking system...


Although careful to point out that they are "not open to debt write-offs," German lawmakers (who preferred to remain anonymous) suggested "possible easing of repayment terms."

As Bloomberg reports,

Germany is leaving the door open to discussing debt relief with Greece’s next government, lawmakers in Chancellor Angela Merkel’s coalition said, signaling a more flexible stance than her administration has taken publicly.


While writing off Greek debt isn’t on the table, talks on easing the repayment terms on aid that Greece received from European governments are possible after the country’s parliamentary elections on Jan. 25, the lawmakers from Germany’s two biggest governing parties said. The condition is that Greece sticks to its austerity commitments, they said.


The potential opening reflects scenarios under discussion in Merkel’s coalition for how to respond if Greek voters oust Prime Minister Antonis Samaras, a Merkel ally who has enforced German-led demands for austerity, and elect anti-austerity leader Alexis Tsipras’s Syriza party.


“There should be talks with any government that emerges from the election,” Ingrid Arndt-Brauer, a Social Democrat who chairs the lower house’s finance committee, said in an interview. “You can talk about extending maturities and easing the interest rate on loans with a left-wing government, too.”


A senior lawmaker from Merkel’s Christian Democratic Union said Germany will talk with any elected Greek government, including about an easing of aid conditions, as long as Greece doesn’t renege on its austerity commitments. The lawmaker asked not to be named because coalition discussions are private.

Germany's DAX Futures are surging (as are US Stocks)


Of course, this is rational - as we noted earlier - it's cheaper for Germany this way... in quantifying the problems, KeepTalkingGreece reports Germany's FAZ notes German economists estimate that...

A debt write off will cost Germany 40 billion, but a Grexit will cost 76 billion euros.




Economist Jens Boysen-Hogrefe is member of the Kiel Institute for the World Economy (IfW), an economics research center and think tank located in Northern Germany.


By a Greek haircut the German state budget would suffer greatly. Financial expert, Jens Boysen-Hogrefe estimates the potential losses for Germany, one of the main creditors of Athens, will be up to 40 billion euros, should Athens insists on a haircut, that would sink its debt ratio from current 175% to 90%.


“If Greece does not serves its debt anymore, the cost would be even higher, notes the FAZ, adding that another Institute for Economic Research, the Ifo Institute calculates the cost of a Grexit as much higher.


The Ifo Institute has added further costs that would be incurred if Greece not only goes for a haircut, but it exists the euro (“Grexit”).


“If Greece becomes insolvent and leaves the euro, the Federal Republic would expect a loss of up to 76 billion euros,” said economics professor Timo Wollmershäuser from the Ifo Institute for Economic Research.

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So to summarize: Germany just won Syriza's elections for them, muted fears of a Greek bank run in the next 2 weeks, and gave German banks higher asset values into which they can sell greek exposure until January 25