German Coalition Partner CSU To Propose Bankruptcy Procedure To Kick Out Chronic Eurozone Debtor Nations

The news out of Europe just keeps getting worse. While earlier we described how the squabbling within Merkel's own party could scuttle her political career, not to mention hopes for ongoing German funding of European bailouts, next we learn that she has not only outright rejected Finland's demands for loan collateralization out of Greece (which would in turn make Greece a selective Debtor In Possession lender, or, in other words, a prepack bankruptcy candidate 101), a move which Finland will likely balk over and very likely unilaterally exit from the second Greek bailout (remember that whole "Greek Bailout #2 is Dead on Arrival" from June 5?), but what is worse, according to Der Spiegel, tomorrow CDU coalition partner CSU will likely propose several "explosive ideas" which not only reject a common "economic government" for the eurozone (thereby slapping Sarkozy fully across the face), but also consider "creating a bankruptcy procedure to kick out of the euro countries that aren't willing to stick to the debt limits laid out in the euro zone's Stability and Growth Pact." In other words zero steps forward, and as many steps back as it takes to get us to before not only the July 22 Greek bail out, but all the way back to the beginning of the year. Only this time, the market is fully aware that both Italy and France are also on the hook: that can not be unwound with any paper.

From the WSJ:

Greece has moved away from attempting to reach a bilateral deal with Finland, under which it would have provided collateral in exchange for fresh aid, Ms. Merkel told German newspaper Bild am Sonntag.


"The creditworthiness of the country would suffer further" if some aid is collateralized and other aid isn't, Ms. Merkel was cited as saying by the paper on Sunday.


The proposed bilateral collateral deal between Finland and Greece was effectively taken off the table last week after several euro-zone member states, including Germany, opposed it. Officials from the 17-member currency bloc held talks last week in an effort to find a new solution that would be acceptable to all euro-zone members. Talks are expected to continue this week.


Finland's collateral demands have opened a new rift within the currency bloc, threatening to derail a second €109 billion bailout package for Greece. Under the bilateral deal, Greece would provide several hundred million euros' worth of cash collateral to Finland in exchange for the Finnish contribution to the bailout.

While we now look forward to the Finnish (no pun intended) response, more interesting will be the market's response to Germany pulling out all the scabs on still festering wounds, and reminding Europe that countries that habitually misrepresent their economic condition will liekly, finally, feel the consequences of their repeated lies. Speaking of does anyone even keep track how by many billions the 2011 Greek budget deficit will miss the Troika's projections, oh so critical in making Bailout #2 possible? Or is the only focus now on what the monthly bank run out of Greek banks has lowered deposits to?

CSU leaders are set Monday to discuss a paper co-drafted by CSU General Secretary Alexander Dobrindt that rejects a so-called common "economic government" for the euro zone as recently suggested by French President Nicolas Sarkozy, and implied in Ms. von der Leyen's proposals.


The paper contains other explosive ideas. CSU leaders, according to Der Spiegel, consider creating a bankruptcy procedure to kick out of the euro countries that aren't willing to stick to the debt limits laid out in the euro zone's Stability and Growth Pact.

More for our Teutonic readers in Der Spiegel.

So what is Merkel left with? Not much - the same as what Obama has copious amounts of in stock: unabashed, Kool Aided, hopium:

Despite the internal squabbling, Ms. Merkel told Bild that her current center-right government will stay in power not only until the next elections in 2013, but beyond. The coalition currently trails the opposition Social Democrats and Greens by a wide margin in recent opinion polls.


Ms. Merkel also said she is confident she will persuade lawmakers from the CDU and from her junior coalition partner, the Free Democrats, to approve changes to the euro zone's rescue fund. 


Ms. Merkel also told Bild that common bonds for the euro zone are the wrong measure to overcome the current debt crisis.

That's swell... Now, what happens if Plan A fails. Surely there is a Plan B. Right.... Right???