Germany Wants 50% Default for Greece

From Zero Hedge:

…the debt rollover plan has imploded and means that the entire Greek bailout has collapsed as some had expected. And now that it is clear that contagion is threatening to sweep through the core, it is back to Germany to prevent the gangrene, no longer contagion, from advancing beyond the PIIGS. However, in order to prevent a full out revolution, Germany’s economic elite has said it would agree to an EFSF expansion and hence installation of European firewall, but at a price: a “controlled” default by Greece and 50% haircuts for private bondholders (as German banks have long since offloaded their Greek bonds).

This means that “Lehman” is indeed here: just like back in 2008 Paulson et al thought they could contain the adverse effects of a Lehman bankruptcy, while the financial system ground to a halt 4 days later when money market funds broke the buck, so now Greece is somehow expected to remain in the eurozone even as it files bankruptcy…

The bottom line appears to be that the Europeans need to come up with $2 trillion to keep their financial system afloat – that is, to keep the bad news confined to the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and keep it out of France. What Germany seems to want – and it is reasonable – is an end to the Greek problem.  That if this is going to happen, it happens once and for all.  The Greek bondholders lose 50%, Greece gets bailed out…and hopefully Greece manages to get its finances in order sufficiently to service the rest of their debt.

The trouble is whether or not bailing out Greece – even with a 50% “haircut” for bondholders – will really do the trick.  Greece is pretty small potatoes as far as the Eurzone economy goes.  Looming gigantically larger are Spain and Italy.  As far as I can determine, both of those nations are already fundamentally bankrupt and cannot rely upon the private economy to service their debt as their bonds come due.  The only entity out there with the willingness to heavily purchase Spanish and Italian bonds would be the European Central Bank, or whatever financial bail out structure the Europeans come up with.  And where does the money come for that? From the Germans who will have already bailed out Greece and have no spare money left?  From the European Central Bank printing up a bucket of money?  Where?

It is the lack of real money – someone out there with trillions not already committed to some other enterprise – which makes me figure all these efforts to avert collapse are meaningless in an economic sense.  In a political sense, they may help the Ruling Class (European and American) ride out the political storm now through 2013.  The cost will be enormous, but such things never disturb people who are rich, in charge and determined to stay that way.


Germany Increasingly Worried About Bailouts

Ambrose Evans-Pritchard in the Telegraph:

German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds.

In a cannon shot across Europe’s bows, he warned that Germany is reaching bailout exhaustion and cannot allow its own democracy to be undermined by EU mayhem.

“I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence,” he said…

Little late there, Wulff, old boy – the European Central Bank has been burying the European Union in bogus debt for three years.

This does, though, point to the end of German patience – after all, Germany can start printing Deutschmarks tomorrow and they would probably be at par with the British pound, and possibly higher.  European money would start to flood in to Germany as people seek a safe haven from the coming Euro-collapse.  It is time to call a halt to this before the entirety of Europe is brought down because the ECB wants to bail out banksters who idiotically loaned money to places like Greece, Italy and Spain.  It can’t be done – and either the PIIGS bondholders will go under, or everyone will.  If I were German, I’d be saying “bondholders go under”.

Will Germans discover a backbone and send the ECB packing, or will lingering guilt over WWII (to be sure, that is something to be guilty about) cause German’s to sacrifice their own prosperity in order to be “good Europeans”?   Time will tell…