The Slog goes behind the scenes in the eurozone:

Merkel fights for survival

Trichet ‘never up for G20 plan’

Greek progress backsliding again

Portugal now ‘critical’

France focused on bank survival

G20 ‘fantasy’ seen as ‘dead in the water’

The Slog’s German banking source was proved right yet again last night, when the Germans described The Big EU Rescue as ‘stupid’. I think he was being Germanically correct when he told me last week  “this will not play well in Berlin” in relation to the Geithner/G20 Plan; but that’s OK, because Geli Merkel has cleared up any potential misunderstanding. And if my source is right about new developments in Berlin, then we’re in very deep doo-doo indeed. He begins:

“Actually you know, Merkel and Schauble’s outright rejection of the 2-trillion-euro G20 suggestion has saved the face of [EU Central Bank President] Jean-Claude Trichet. If America wasn’t prepared to get involved in a sort of Marshall Plan, then Monsieur Trichet did not have the stomach for this idea. He is a sharp man, Trichet: he kept quiet knowing the idea was mad, and would run out of road very quickly.

“But what people have forgotten in the midst of all this fantasy about trillions of euros is that the plans we already have are falling apart”.

The Slog’s BundesMole is not exactly ripping the scales from a million eyes with that one, but this next bit is something of a bombshell (My italics):

“There has been in the last five or six days in Berlin and Paris something of an awakening. First, Frau Merkel is in a corner. She will get her EFSF expansion bill through one way or another I think. But the word coming back from the Troika is 100% opposed to what Papandreou and Venizelos said in public yesterday. Despite some spin, Greek progress is negligible. She daren’t give any more money to a nation already seen by most Germans as feckless….and she is fully briefed on the situation in Portugal, which is now critical.

“Second, the political, legal and banking opposition to bailouts within Germany is gaining strength….to the point where even partaking in the expanded 440 billion euro EFSF fund may become politically and perhaps constitutionally impossible. Merkel has had the riot act read to her by CDU colleagues: you may want to go down forever on this issue, but we don’t.

“Finally, Paris is at last being brutally frank about not only its disastrous level of exposure to Greek debt, but also its direct responsibility for guaranteeing the losses in the event of Greek default. The Elysee Palace is in a full-blown panic about this. Under such circumstances, Sarkozy will not even contemplate giving more money to mortally wounded member States. His focus now is 100% on ensuring the French banking system survives.”

Well, some of us have been wondering about the ominous silence over the last few days. Now we may be getting an indication of what it’s all  about. So since 9.15 am EU time today, I’ve been investing some time and telephone bill in getting the view from Paris.

I wouldn’t say the news is unequivocally confirmatory. To be frank, only one contact had a view on the situation at all. He told me:

“I can state clearly that Dominique Strauss-Kahn’s telephone has been very busy indeed. I even hear rumours that Lagarde has sought his advice. I can confirm that the mood among Elysee staff is best described as hysteria. And I understand that capital is being gathered from every corner to prop up the banks. As to Berlin, however, that’s too complex for me at the moment”.


We live in a culture where the unbelievable is nevertheless inevitable. And when this is the case in fiscal economics, we are so obviously doomed, one might just as well dump the debate in favour of deciding how to survive and prosper. Either way, what the eurozone represents to investors this morning is the world’s biggest, multivariate Bananas Split.

Four days ago, in describing the Geithner G20 Transmutation strategy, The Slog predicted that the banks wouldn’t want the haircut, and Germany would reject the plan. Today, we learn that seven eurozone members want the banks to pay more, the banks themselves want to pay less, and the German Government has described the G20 plan as ‘stupid’. All this on the day that Papandreou was in Berlin begging for unity. He might just as well beg for Unity Mitford for all the difference it’s going to make now.

The FT described the FTSE reaction to this news as ‘uncertain’. In Wonderland, this too is both mad and predictable: they shoved the markets up 3% on Monday and Tuesday ‘on news of a G20 rescue plan’ that was a rescue plan – up to but not including rescuers, people willing to be rescued, and rescue vehicles apart from one used Reliant Robin. The International Rescue was indeed F.A.B. – froth and bollocks. What’s to be uncertain about?

“It’s a crisis of confidence that has not happened for decades,” President Barroso said in his annual State of the Union address, during a session of the European Parliament in Strasbourg. ‘Centuries’ would’ve been nearer the mark there Jose, but he’s a game guy is Mr Barroso: every week Merkel slams a baseball bat against his temple, but he still gets up and finishes fourth. Last month it was a eurobond, now its a financial transactions tax.

The bottom line to all this ridiculously anarchic posturing is that, like it or not, the US Fed Reserve is now turning rapidly into the lender of last resort….while at the same time being a borrower of the first magnitude. Logically – unless the US cuts the rope on Europe, as many there now want it to do – this can only end one way: a massively over-reached America, followed by a spectacular default. In fact, by this time – say, mid next year – it’s going to be quicker to tot up the developed nations not in default.

I really can’t say what happens next, but I’m clearer on the Franco-German focus. For them right now, the G20 plan-builders are a bunch of  space cadets between planets. National self-interest is well and truly back. Are these two founder nations actually going to make themselves totally safe…and then cut the rope?