But Slog piece on German preparations for default confirmed.
Christine Lagarde came out of Marseille with a fraction of what she wanted, and a red face over leaked IMF discussion papers. Despite her media protestations at the weekend that she “might have overestimated” the wobbliness of eurobanks, the discussion document suggests that the eurozone banking system is a 300 billion euro toxic debt short of a survival.
Harken unto the sound of blind panic as Chrissie takes to the microphone:
“There has been misreporting about the 200 billion euros, this number is tentative. This is not a stress test that the IMF conducts nor is it the global capital need for European banking institutions, that it is not, and we are currently in discussions with our European partners to assess the global methodology until we reach a tentative draft. It will be published before the end of September.”
Actually Christine, the number was an even more tentative 300 billion. And nobody is fooled any more by ‘tentative draft bollocks: lenders are all drafted out. The euro lost 0.5% against the Dollar overnight on the news.
Every stock future in the world was negative this morning. In Asia last night, the Hang Seng lost 3.38%, and the Nikkei 2.27%. The Greek Cabinet yesterday voted to cut one month’s wages from all elected officials, and impose an annual charge on all property for two years, to be levied through electricity bills to ensure rapid collection. This is now, I’m reliably informed, the only way any Greek tax can be levied: by removing money from the citizen systemically. Some estimates believe the black economy in the stricken country has soared over 60% since the austerity programme began. Even under this new proposal, a widespread view is that many people simply won’t pay the electricity bill.
As we’ve seen, German Finance Chief Wolfgang Schauble last Saturday repeated a threat to withhold the next 8 billion-euro payment from the original rescue unless Greece shows it can meet fiscal targets agreed with the EU. Meanwhile, there were noises off as his Ministry worked 24/7 on designs for a post-Greek default eurozone. Schauble doesn’t want Greece to leave the zone; most Germans do.
Yesterday The Slog led with the story, and this morning the Bloomberg site confirms it:
‘After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, German Chancellor Angela Merkel is laying the groundwork for what markets say is almost a sure thing: a Greek default. “It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.”
Up until last week, the only institution holding the EU shambles together was the ECB. But three events in that week severely damaged the Central Bank’s credibility.
The first was the BundesCourt rulings. These made it crystal clear that, not only could Germany not join a fiscal union without a domestic referendum, it also could not instruct permanent bodies to lend monies ‘where the liabilities might be incalculable’. Call me wacky, but it’s hard to see how either the ESM planned for 2013 or the ECB itself could avoid that definition. I’m not sure many people have picked this up, but in its eagerness to please the Merkel/Schauble axis, the Court actually closed down a helluva lot of options. ‘And serve it right’ would, I’m afraid, be my response.
The second was the abandonment by Trichet (behind the scenes) of any pretence at responsible lending to Greece in particular and the ClubMeds in general. In effect, the banks’ ‘fear money’ being parked in Frankfurt is going out the back door quicker than it floods in the front. Meanwhile, Trichet pays interest on these huge sums, buys junk, and gifts direct cashflow he will never see again. It is palpable madness.
The third – and by far the highest profile – was Jurgen Stark’s decision to resign in order to spend more time with his dark bitterness. The gay abandon of Trichet’s spending spree in Italy was, I understand, a write-off too far for the ultra-hawkish German. Herr Stark has fiscal views that make Rick Perry look like a Kennedy Democrat.
Money, credit and sovereign lending sectors at the end of the line are really only interested in two things: will I get my money back? And who are the money-centres most likely to ensure I do? Before last week, the view was, “There’s no way I’ll get it back from Athens, but either the ECB or the Germans or both will stump up in the end, probably”. Events in Frankfurt and Berlin during that week changed the picture entirely.
“This is insolvency on a grand scale,” says a Frankfurt-based credit manager, “And once there’s no way to stop it, the game becomes a melee of creditors taking damage limitation steps, all the while yelling ‘Me first! Me first!'” A London-based sovereign credit expert last night agreed wholeheartedly with that analysis:
“The ECB is now completely compromised, and Germany is obviously ready to pull the plug on Greece. So now it’s a bankruptcy – with far less at the bank than is owed by the bankrupt. From here on, it’s a scramble to get paid.”
The problem, of course, is working out who the bankrupt is. An American source had this to say:
“As long as it’s just Greece, no major bank should get blown away by Hellenic debt. But once bitten, you know? Moves are already afoot to limit exposure to the peripherals in total, and this is, while understandable, what makes it likely in my view that access to money markets for them will be diddly the day after Greek default. The signal now from Germany is “We’ve had enough”. In saying that, they damn everyone else. This will be a disaster created by fear between banks, and fear of zero debt security.”
Next time: who will the fallen be? And why will there be surprises about their identity?
Stay tuned.
Read the whole ghastly slow-motion traffic pile-up at the dedicated Crash 2 page.
The Slog 