Alarming French debt data shift eurozone balance of power back to Berlin
As the true extent of Greek ally France’s short-term debt problems came to light, French sources today reported that the Troika will produce “a damning report” on Greek austerity and debt repayment progress….alleging in particular that Athens is building a ‘survival fund’ to give it greater bargaining power. This muddies the waters still further in relation to the European tour of Greek Prime Minister Antonis Samaras next week: Berlin now looks to be in a stronger position than previously.
Events make fools of us all. Last Saturday, The Slog nailed its colours to the mast of an inevitable German exit from the eurozone. I still think the odds are very much on that outcome, but one or two developments in the last 36 hours have moved things back into the realms of possibility for a Merkeschäuble triumph against those odds. For the risk investor, these are the most significant ones helping Germany:
1. As The Slog posted this morning, the ECB seems to have theoretically deeper pockets – and France much bigger debts – than many had previously assumed. These facts mean, respectively, that Athens is less able to play the damage limitation card, while France is a less valuable ally than Samaras had hoped. (It has been reported today that the Greek PM already has the support of Francois Hollande for his desire to relax the pace of German austerity and debt repayment).
2. Berlin is (as predicted here) gathering media forces in an attempt to steamroller opposition. German newspaper Handelsblatt reminds Mario Draghi that, under the Lisbon Treaty, the ECB lost its independence: Article 13 of the consolidated treaty (p. 23), states that the Central Bank, along with the other institutions, “shall aim to promote its [the Union's] values, advance its objectives, and serve its interests”. In short, the ECB is subservient to Berlin-am-Brusssels. Der Spiegel meanwhile headlines with ‘Greece Before the Abyss - Only Bankruptcy Can Help Now’, adding pompously, ‘Greece has disappointed its creditors yet again. Now its government plans to ask for more time — and needs billions more in aid. But Greece’s euro-zone partners are unwilling to provide any more help, meaning that the only hope now is to admit defeat and let the country make a fresh start’.
3. Leaks from both the Greek tax authorities and the Troika suggest that the Greek tax intake figures are truly dire. Hardly surprising, but a severe weakening of the Athens position.
4. Sources close to the Troika are meanwhile suggesting that its September report will accuse Greece again of dragging its feet on asset sales, failing to clamp down on massive tax evasion, and deliberately pursuing policies to benefit itself rather than the creditors.
This is the point at which we segue into those factors building in favour of the Samaras bargaining position:
5. As per 4 above, there are signs (and feedback) suggesting that the Athens government is indeed ahead on some of its spend-cutting programmes. Sources there are certain that the Greeks are building a budget bypassing the Troika – thus giving the country an emergency fund to live on if things go badly wrong next week.
6. Samaras is carrying with him a compelling dossier of some social and economic consequences of the austerity programme as it stands. These, he will suggest, are more than enough to save face for both the Troika in general and Merkel herself were they to accept a slowing of austerity and lengthening of payback period.
7. As The Slog has been insisting for weeks now, the pressing geopolitical needs of the US and Israel offer a clear alternative future for Athens to the EU….one which would be avowedly anti-Turk. Perhaps even more persuasive is the by now very clear evidence that Greece is sitting on massive undersea energy reserves: these could be crucial for a eurozone desperate to reduce its dependence on Russia as a source…and a major boost to the commercial interests of Israel and the US.
My own view remains that the pendulum will swing back again, but much now depends on the timescale of that taking place. To explain, I believe that the situations in Spain and Italy will be telling if they each a crisis point during next week – something I see (along with many credit sector contacts) as a probability. The potential cost of a Greek departure, when added to the de facto bailout of Spain, will bring a furore of alarm from Bankfurt, fear from the German electorate, anger from Paris, panic in the markets….and horror to Mario Draghi.
Put together, that combo will, I believe, force Merkel to uncock her gun. And having done so, Berlin will have no choice but to switch to Plan B – departure from the eurozone. I think it likely that the markets will be the decisive factor as usual: but what of Draghi’s ECB itself – which, according to our indiscreet official of yesterday, could in theory absorb far more debt than most people realise?
Stay tuned. This one is finely balanced.
John,
I’m intrigued by your saying that you think Germany will exit the Euro. If it does, surely the Deutschemark will will soar, the Euro will fall and the Dollar will rise? Not what Germany or the US would want. Result? Falling stock markets in the US and Germany.
Or am I misinterpreting it?
DavidC
That’s a short term problem. Being on the hook for everyone else in perpetuity may seem a bigger long term problem by comparison.
Sebastian,
I’m not denying that at all, I was just considering the immediate reaction. I don’t think there’s any way out of what’s coming.
DavidC
I too have long been of the opinion that Germany would abandon the Eurozone. It seems to me that at the end of the day the question becomes very simple; would Germany accept the role of last man standing, effectively guaranteeing the debts of the rest of the Eurozone, shortly to include France as well as ClubMed, or would it, when push comes to shove, bail? If the Eurozone somehow morphed into Greater Germany they might be prepared to take that role, otherwise I can’t see it.
It is nigh on impossible to know just how the financial mix would pan out if Germany did exit, or if there was a disorderly Eurozone collapse. With a disorderly collapse the consensus seems to be, everyone will get burned, the whole thing will go global with the likely collapse of the entire fiat money/fractional reserve lending/credit based growth model falling apart. The bright spot would of course be the opportunity to build a money system that is not a ponzi scheme dependent on ever increasing ‘growth’.
If Germany decides instead to cut and run the consensus is that the DM would appreciate somewhere between 10% and 15% whilst the Euro would depreciate by something like 40%, giving all the EU debtor countries, even Greece, a potential route out from financial Armageddon, although the likes of Finland and the other little EU creditor countries would be very unhappy, not to mention the US and China.
The judgement Germany would have to make at the end of the day is what scenario is the most survivable financially, cut and run, EU debt guarantor or global financial collapse? As I see it, no contest, cut ‘n run.
I should hasten to add, given his rather sour nature lately (with good reason I am sure) that my answer is in no way intended to answer for John, pre-empt anything he might say or be anything that could be deemed offensive.
Peter C
Very well reasoned and ironic comment – thanks!
Yes, I have been sour over the last few weeks. I can only summarise my feeling thus: People who know something are incredibly valued here, and a huge part of The Slog’s success. People who know everything are a pain in the arse for me and everyone else.
Come on mr. JW admit it…We can’t keep up with them, can we?
Tassos my man
I think you’re almost certainly right. You should shoot all the Coalition gangsters, and sign up with Israel. You’d be the perfect foil for them.
Ouch!
Word…
we simply cant pay those crazy taxes! Is that good enough? let the Big Buck tax evaders pay them and do the story telling to the Troika. I personally refuse to pay more than I gain
That’s exactly the point. You no longer have sufficient income that’s why you need to sell off your ”silver spoon collection” (cheaply) to survive. Soon it will apply to everyone.
let the Elites pay their own debt since They generated it.They sure have silver spoons not mentioning the knives :D
tassos_gr
The problem with that is what we already have – when everyone is broke, everyone is trying to sell to clear the debt, who is going to be doing the buying. We need to find another planet soon; one with lots of money and nowt to buy with it.
M.
I don’t know one person who has money for anything besides food, maybe they can pay their electric regularly… around here… people are hoarding firewood, and stockpiling beans, potatoes, oil, etc… end times folks. I hope the Euro fails in a huge fireball.
Germany cant leave-Nobody can leave-Its in the rules .
Bit like ‘Hotel California’ then…..”You can check out any time you like…but you can never leave” …(your Real, Percieved (and Possible Future?) Debts behind, that is…. !)
Addicted to debt….
Cluer
Not strictly true: anyoen can leave, but there’s no mechanism for it. Just as there’s no way the ECB can ever be deemed insolvent: because the EU is run by incompetent zealots.
Just so long as the UK is only responsible for a 14% (ownership) share of ECB debt that can never be recognised by any world parties whatsoever as anything other than a big fat ZERO even if/when it dips down well below zero….then I’ll happily sleep tonight…..I don’t understand the maths here, but knew that I was a dim with figures from a dodgy exam result when I was 16.
If perchance anyone else out there thinks that the 1/7th (approx) of whatever Draghi and the Sprouts run up in Trillions by Xmas might turn up at the UK Treasury’s door in Whitehall or in a smaller but (to me) more significant part…. at the door of a very common man and recent pensioner in deepest Surrey, then I for one could rapidly become stunningly nervous about where in hell this is going !!
Germany isn’t going to leave the euro. Germans are far too wedded to the concept of one Europe indivisible to cut and run unilaterally, and in any case they are most unlikely to be the first to break ranks and do anything radical, whether with regard to the euro or with regard to anything else.
Greece isn’t going to leave the euro because the great majority of Greeks don’t want to, and no Greek prime minister has what it takes to utterly defy his or her electorate.
Spain and Italy are most unlikely to reach “crisis point” next week. Thanks to Draghi, the heat has gone off the spread between Italian and German bonds, and Rajoy is making noises that are encouraging enough to keep investors at bay for the time being.
Unfortunately, events in the eurozone lack the clarity and simplicity of Dallas scripts. Ever since the 1950s, whenever there has been even the remotest indication of a crisis in the EU, huge cargoes of fire-dampening fudge have been offloaded, and that’s what’s going to happen now. On this story, sitting excitedly on the edge of one’s seat will alas produce only a very sore bum.
So tell me then Houndstooth, what’s going to happen? I don’t cappiche this one: a war?
What’s going to happen? No idea, chum. If I knew, I’d be a rich man instead of an impoverished pensioner.
But my guess, for what it’s worth, is continued application of masses of fudge, Merkel endlessly prevaricating until election time without giving anything important away, Hollande being his disappointing feeble self, much shuffling of the dominoes that will be fatuously hailed as the first steps towards fiscal union, the Greeks being endlessly strung along, and continuous cat-and-mouse stuff (and Delphic utterances) by Draghi designed to keep the bond markets at bay. Insane austerity will reduce peripheral Europe to its knees (Greece is there already) but expressions of popular resentment will very probably continue to be as subdued as they have been so far.
This dreary business won’t go on for ever. Matters might suddenly be brought to a head by the election in a leading eurozone country of a charismatic nationalist “populist” leader who will rock the boat violently enough to cause a major reassessment. But I wouldn’t expect that to happen anytime soon. For several years now, the eurozone has been in dazed sleepwalker mode, and it’s a mode that keeps several vested interests happy and well upholstered. Sorry, but all things considered, I wouldn’t expect any sudden radical change for quite some time. Capisce?
Possibly War. You will have read Bernard Connolly’s ‘The Rotten Heart of Europe’, his critic of ERM, but it applies to EMU.
Houndstooth: If you don’t know what’s going to happen, how do you know what’s NOT going to happen?
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“Perhaps even more persuasive is the by now very clear evidence that Greece is sitting on massive undersea energy reserves: these could be crucial for a eurozone desperate to reduce its dependence on Russia as a source…and a major boost to the commercial interests of Israel and the US.”
Where is this “clear evidence”? I can see it off Gaza (gas was discovered there some years ago by British Gas and others but exploitation was stymied by Israel), Israel and Lebanon to Cyprus and beyond towards Greece but is there anything definitive?
Rare Earths are also usually mentioned as another Greek salvation but again they are not particularly rare and their extraction and refining is traditionally a very dirty business.
AJC
I think its existence is best evidenced (from numerous sources) by the sheer number of US diplomats, metallurgists and mining experts on assignment in Greece right now.
But I can relay to you first-hand the deposition of a female engineer who has the full strength on how much is at stake here….a good woman who is now in hiding.
The West plays down the significance of the finds, and the MSM soak it up like amoebic blotting paper. But if it was insignificant, why would Erdogan, Geithner, Putin, Merkel and their mothers be crawling all over Greece and Cyprus?
Don’t listen to what they say…watch how they behave.
Sounds to me like yet another re-run of the hoary old (but sometimes useful) Eldorado myth, but I could of course be wrong.
http://rense.com/general95/newmedd.html
Houndstooth
http://www.thethe.com/news/tag/oil/
Just one of the 1.95m articles/sites etc in Google.
I just did it int under twenty seconds.
John: Why not Google F. William Engdahl, whose views you cite with apparent approval? He’s round the bend, is our William, and invents his own geology as he goes along. It’s a fairly safe bet that professional geologists know a lot more about geology than economists such as William do (and vice versa), and before leaping to conclusions, I’d prefer to wait and see the results of geological surveys of the eastern Mediterranean sea floor.
Yes undersea gas deposits have been found close to the Levant coast, but to the west of that zone, a long history of active plate movement makes the discovery of large-scale oil deposits unlikely. Major oil deposits tend to occur in stable synclinal sedimentary structures, but the Mediterranean sea floor isn’t stable but tectonically dynamic – that’s why earthquakes frequently occur in Turkey, Greece and Italy. (If you doubt what I say, look at a good geological atlas – finding the right page should take you under twenty seconds.) Oil might indeed be present under the seabed, but in small quantities and in fragmented formations.
I see that the Eldorado merchants have suddenly fallen silent on the alleged enormous mineral wealth of Afghanistan. Perhaps they have all migrated to the Aegean – and who shall blame them?
Sure, ECB can absorb more debt. Just like the FED. Just print the stuff. Doesn’t the ECB have an open ended, no-limit swap-credit line with the FED?
Doesn’t that make the FED $ the real ‘master of the universe’?
Walter
The ECB did a deal with Geithner in April by which the Fed would ‘provide dollar cashflow’ under the radar….but never ask for it back. It happens all the time.
Yet the gruesome twosome Barroso and the Rump are still pressing for full political and financial unity. They still don’t understand that you can’t have that unless you redistribute all the wealth of European nations, from rich to poor. And how do you expect the frugal, efficient and diligent, to agree to dishing out their savings to their lazy, and corrupt cousins of the south.
France, Spain, Portugal, Italy, Greece, Ireland, Austria and the satellites are all broke. Germany (broke in a different way from the Landesbanks) will never bail them out, and will block Draghi from magicking money out of thin air. If they could seize the greek maritime fleet, maybe they would grudgingly carry on, otherwise all the casualties have to convert to the dollar, or the Germans start printing deutchmarks.
But they can all stall for some months yet, quite extraordinary how they think the consequences don’t multiply the longer you delay.
‘Panic in the markets…and horror to Mario Draghi’.Spot on ,JW.
The last thing the anglo-american elites will ever allow is an independent Germany making independent decisions. They dragged the whole planet into two wars to prevent that, always managing to keep their own ugly part in the game hidden by blaming the germans for everything. Does anyone in his right mind still believes that Germany will ever gain full souvereignity unless the Dollar has crashed, the moon turned pink and cows start flying? And Greece. Who the heck genuinely cares for Greece, this country and its financial situation is but a well-created distraction and a raw tool for far too many interested players around the global chessboard. A gigantic smoke grenate, with Italy, Spain, Portugal, France and Belgium as spares, if the smoke runs out in Athens. No one cares if a whole population of 10 million is brought to the edge. No, it is all about Germany, as Germany is the key to control Europe. Keep the Hun contained and you have Europe. Use the Greeks, or Italy, or Spain, France, Belgium, whomever, to keep the germans bound in the western system, politically and financially. If they were to leave the €uro single-handedly i would not wonder at all if NATO troops would cross the Rhine and the Odra one day later to … um … well … save them from further arbitrary behaviour.
Poor little Germany… playing the victim… the bad English managed to drag the world into wars against them… Germany of course had nothing to do with starting these wars right?… waaaaaaaaaaaaa… if you don’t like it… leave. Germany does not want to pay anymore… what a horrible situation… in Greece (that apparently no one really cares about) people are dying for lack of medicines, children faint in school from hunger… those are REAL problems… stop yer crying.
Ioannis, you convinced me once again that i would welcome every move of the German gouvernment to stop any payments to Greece immediately. Every one of your comments strengthen my feeling that maybe, maybe what those silly german tabloids are writing about the impertinence of the Greeks is not entirely evil propaganda.
Regarding the wars: I never assumed Germany to be an innocent victim, that would be ridiculous. I said that the anglo-american elites dragged the whole planet into two wars and managed to hide the fact that they were heavily involved in what happened, as they had strong financial, and even more so, geopolitical interests to do so. Afterwards they managed to hide their own involvement and dodges in the terrible slaughter quite well. Read some history books, look up MacKinders Heartland Theory and get a clue, dear.
Dear… I could not care less if Germany stops payment to Greece… I am not some ignorant cowering pensioner that fears everything they hear on tv about leaving the Euro being a catastrophe, etc. so please dear… tell your “leaders” to stop interfering in our elections and openly supporting crooks like Samaras for re-election so that we can get down to the business of reclaiming our Democracy instead of the business of letting Germany shore up their banks and use Greece like a red headed step child to blame the evils that EVERYONE in the euro is engaged in. Your theory is no excuse for the pure evil your culture is COMPLETELY responsible for… the idea that you in any way defend German aggression and slaughter is horrific and…
” Every one of your comments strengthen my feeling that maybe, maybe what those silly people that say Germans haven’t changed and that their still Nazi’s and they are not sorry for their crimes and would do it again in a second is not entirely evil propaganda.”
Dear.
Silly troll… why constantly prove you have a small penis?
The Germans will never leave the Euro, it’s their way of applying for readmission to the human race.
PMSL…
Maybe rare earths are a lot less rare thsn we think?
Origato.
Angela has lead Germany up the cul de sac , depending on a busted eurozone to.prop up tough ur own econony isn’t sound economics. But no doubt like Helmut Kohl grandstanding and talking tough is all she’s good at.
Wonder whose the bookies favourite to.exit the eurozone first? Bookies usually know best as its their money on the line. My guess is Spain either it defaults and leaves or its civil war ala 1936.
Ahhhh… I just don’t give a shit anymore… I hope the whole EU fails and the whole worlds financial system implodes as a result… a clean break… capitalism should be allowed to work, the banks should fail, etc, etc, those of us here in Greece are at least somewhat prepared for any contingency… certainly tired of the EU’s 4 year long cat and mouse game… just keeping us alive to torture… I say freck it all to hell… let’s get this nightmare over with.
The banks are sitting on billions of QE and ECB money,waiting to pounce on distressed Sovereign assets at pennies on the pound. Problem ,there is little left to steal in the UK. Thatcher sold off the family silver of Electric,Gas, Water, Telecoms, Rail/Shipping/Bus companies many years ago.
There may be still rich pickings for the bwanker hyenas in the PIIGS nations.
That is another reason the banks are not lending to Industry, they are keeping their powder dry for easy pickings. A financial coup d’etat of Europe is on the horizon.
@Salford… both very astute observations…
A source in the Deutsche Bank claims that in 2008 our financial and monetary system completely collapsed and since that time the banking cartels have been “propping up the system” to make it appear as if everything was fine. In reality our stock market and monetary systems are fake; meaning that there is nothing holding them in place except the illusion that they have stabilized since the Stock Market Crash nearly 5 years ago.
Since this time, the Department of Homeland Security (DHS) in conjunction with FEMA and other federal agencies have been quickly working to set in place their directives of control under a silent martial law.
The Deutsche Bank informant says that the cause for the bailout of the banks was a large sum of cash needed quickly to repay China who had purchased large quantities of mortgage-backed securities that went belly-up when the global scam was realized. When China realized that they had been duped into buying worthless securitized loans which would never be repaid, they demanded the actual property instead. The Chinese were prepared to send their “people” to American shores to seize property as allocated to them through the securitized loan contracts.
To stave this off, the American taxpayers were coerced by former President Bush and former US Treasury Secretary Hank Paulson. During that incident, the US Senate was told emphatically that they had to approve a $700 billion bailout or else martial law would be implemented immediately. That money was funneled through the Federal Reserve Bank and wired to China, as well as other countries that were demanding repayment for the fraudulent securitizations.
Has the stink of truth on it…
I still don’t believe Germany will be the first country to leave the EZ, because of historic/psychological reasons. Germany destroyed much of Europe in WW1 and WW2, they will not fire the first shot a third time. I think that the small Countries like Finnland or the Netherlands will get out first, only after that the Germans can leave the doomed project without taking to much blame.
Believe me, one trip to Athens… will change your mind about that third shot having been fired already.
If Greece can get a better deal with Israel and the US using their energy reserves, they should do that. The Greek would lose Europe then of course, that they should realize. It is all geo-politics. The US is more interested in controlling Eurasia than it is in having a united Europe. Europe is militairally and politically no threat to the US. The monetary threat of the Euro to the US, well Wallstreet is working hard on that one. Europe is easy to divide, the US is well aware of that. The US only needs a stable European economy in order not to have contagean to the US economy.
“The US is more interested in controlling Eurasia than it is in having a united Europe.”…
Never been a truer statement…
Thanks!
I truly hope that things will turn for the best soon in Greece, in every sense. It is up to the Greek people to build a new society. First get rid of the old oligarchy.
From today’s El Confidencial:
The Minister of Economy and Competitiveness Luis de Guindos , said that the intervention of European Central Bank (ECB) to ease market pressure on Spanish debt must be “strong and not have set a limit beforehand or amount or duration. ” Minister has indicated that such interventions “can not be put limit or can not explain at least the amount with which to intervene or for how long, not to reduce the effectiveness of aid which aims to dispel doubts about the euro area”.
So the Spanish want an unlimited amount of everyone else’s money to put right the disasters their rotten management has caused. Brazen or what? Some kind of tacit blackmail here – write off our debts or we will crash the Euro.
Sorry this is not Greece, but attitudes in the South appear to be hardening towards those who are on the hook to bail out countries in a mess.
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Looks like BT has been, Persona non grata’ed
@wap: Spam alert…
BD
I already banned BT/Bankrupt Taxpayer/Today’sNewName for offensive remarks made about myself and others on the site. He was given several warnings, and ignored them all.
That’s WTF is going on here, BT: I’m running my site for the enjoyment of the 97% who come back because they find it informative.
Given he dislikes The Slog so much, I’m still unclear as to why he’s already gone through five email addresses trying to get back in.
Cue another alias grumbling about erosion of freedom of speech etc etc.
Waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaah!!!
malaka
What a baby…
Waaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
Waaaaaaaaaaaaaa… silly troll.