Schauble….does he want the French by the balls?

Is Berlin trying to force Athens into controlled default?

During the last 24 hours, The Slog has contacted German banking, Washington diplomatic and Parisian sources to gather opinion about what seems to be a growing split between the Bundesgovernment in Berlin and the ECB in Frankfurt about Greek debt strategy. This is my report and conclusions.

In the last hour, European Commission bigwig Jose Barros says he is “confident a solution in Greece will be reached next week”. How many times have we seen confidence misplaced over the last five weeks?

Allow me for a few paragraphs to inject some reality into the latest stage of the Greek debt management to which I attached Zen-like qualities yesterday. Only this time, no fun is intended.

Wolfgang Schauble, the German Finance Sinister, stuck his oar into the Brussels negotiations last night by saying that Greece is still “325m euros short” on being in shape to keep the country’s national debt within reasonable size.

Now the Greek debt has not been of a manageable size for something like four years. It has just been reduced by around 12o billion euros, and before that it stood at 351 billion euros. Herr Schauble is an intelligent man, and he is fully aware of the fact that 325 million euros is almost exactly one thousandth of the total. Mathematically, there is no way that amount is going to make the slightest difference to an already impossible debt situation – the impossibility of which, you can be sure, Wolfgang Schauble also understands perfectly well. Otherwise, he wouldn’t have been pestering Merkel about letting Greece default inside the eurozone for at least ten weeks already.

You may well be joining up the dots like I am here. Schauble was also influential in getting the Fuhrerine to send out that disgraceful EU commissioner memo to all EU FinMins a week ago. Wolfie’s game plan remains the same: he wants a controlled default within the eurozone.

Now as it happens, the ECB’s Mario Draghi doesn’t want that, because being a wise man with no real national interest (he did after all once work for Goldman Sachs) the Central Bank’s director knows a controlled default is a bit like a gradual panic: there is no such thing. This is why twice in the last 36 hours, Signor Draghi has stepped in with some disguised debt forgiveness – to the tune, I am informed, of some 35 billion euros via one devious means or another.

Directly running a controlled default from Berlin sorry Brussels via a commissioner would be a win-win for Germany: it could prove to the markets that it can ride crises without expulsions, it would kick all the local bandits sideways….and above all, it would leave Berlin’s hands firmly around the French balls – should it ever be able to find them.

For a controlled default would still mean big trouble for at least two major French banks…and Brussels would need German approval for how the list of creditors to be paid shaped up. Think that’s far-fetched? Cast your minds back to when Sarkozy went steaming ahead in his desperate efforts to get at the EFSF via the ECB…to bail out his banks. Then remember how Berlin quashed any support for that idea on four separate occasions. Germany is running the EU now, and don’t let anyone suggest otherwise. Think the power-play is far-fetched? Don’t forget the Gauleiter memo that became an Unthing 48 hours later.

This is not a scheme designed to deliver Grossdeutschland. It simply reflects the Merkelian view that Germany is the only EU member capable of constructing a solution to the EU debt crisis: FiskalUnion. Or FiskalNacht as the wags in Brussels are starting to call it. It is a very dangerous game – but one that is suspected by a variety of Slog sources.

We should continue monitoring what happens next in Brussels. But there is a growing feeling in the Foreign services of Europe that there are some mad folks involved at the top.



  1. Directly running a controlled default from Berlin sorry Brussels via a commissioner would be a win-win for Germany: it could prove to the markets that it can ride crises without expulsions……


  2. sorry
    that should have included a very big HOW? in respect of a controlled default as you say just a couple of lines earlier that such a thing doesn’t exist


  3. “325m euros short” – a coded reference. If anyone is up to a bit of G**gling, we will better know what Wolfie is saying (and to whom).


  4. “But there is a growing feeling in the Foreign services of Europe that there are some mad folks involved at the top.”

    I often think I should have joined the F.O. I seem to be about ten years ahead of them in most of their conclusions. Then I realise so is everyone else. It must actually be fairly difficult for them to be as bad at their job as they actually are.


  5. Apart from the €325m that Baubles is babbling about, I heard last night that another major concern is that the Greek numbers are all based upon an economy which is shrinking daily. So the shortfall is possibly even wider…


  6. By now means do I wish to oversimplfy the situation, or cast doubts on an excellent piece of overnight journalistic investigation. It is as admirable as it is accurate. But at the end of the day, the Greek people must decide their future and they most certainly will.


  7. Strange times when 325 million is regarded as a pittance in this climate of austerity. I suppose it’s understandable in a way that Merkel wants to get people by the balls, seeing as Europe is run by a committee of idiots each pushing for their own self interest. In Irish parlance, Barosa is a bollix, just wanted to say that.


  8. Latest from DT:
    Spanner in the works time. The Greek far-right party leader, George Karatzaferis, said he could not vote in favour of the €130bn proposed bailout package proposed for the country.

    In inflammatory comments made at a press conference, he also said the IMF mission chief for Greece should be persona non grata in the country.


  9. Sorry should have added this:
    I explained to the other political leaders that I cannot vote for this loan agreement. If we want things to go forward, Poul Thomsen must be declared persona non grata for Greece.”


  10. Look at this from the standpoint of Merkel and Schäuble. Neither has any economics background, but they do have a strong political will remain in office. Their goal: to patch up the spatchcock Eurozone at any cost short of losing office.
    So what do they see? A declining belief among Germans in their official protestations – they are being progressively rumbled – that Germany will not be the donor in a transfer union with a potentially bottomless appetite for German funds. They might even believe that such transfers – so long as they can control the amounts donated and the purposes to which they are put – are a less awful alternative and a less costly outcome to Germany than disorderly EZ collapse.
    But they can’t afford, politically, to say so. As JW says, this is not a plan for a 4th Reich, but a desperate attempt to limit the damaging consequences resulting from decisions taken by Schäuble’s and Merkel’s erstwhile boss (Helmut Kohl).
    Both know they might fail. But failure – so long as the finger of blame can be pointed at others – might not finish them off. They are almost certainly wrong in hoping that “something might turn up” if they continue to kick the can down the road, but hope springs eternal even in the heart of Berlin.


  11. OT but related. This surely deserves visibility. From the Telegraph today:

    “dsmitheconomics David Smith:
    “We’ve come full circle. George Osborne attacked QE as a response to government’s policy failures in 2009. Ed Balls is doing the same now.”

    Indeed. Full circle.


  12. 352M is chicken feed in the context of Greek debt and the overall bailout – not even a rounding error. So why after a massive protracted negotiation has the deal been refused for this paltry sum? I am left feeling that someone does not want the deal to be done and is looking for an excuse to kill it. That was my first thought when I read the news today.

    It is not as if the deal will be delivered. Greece will fail to implement the promised measures and its economy will continue its death spiral. So by failing to agree to the deal someone is recongnising reality here – but maybe looking for a political reason to abandon Greece.

    My thinking on this is that the EU/Germany wants rid of Greece as it will always be an economic running sore. It is being abandoned without a bailout. The money is going to be used to repair the damage instead.

    This presupposes that the damage can be controlled. Just like Lehman. Interesting times.


  13. Are we getting to a point where we could imagine ISDA could consider Greece has not defaulted because it wasn’t their choice?
    After all, they are going to have to come up with something to declare non-default, aren’t they?
    I suppose they are not really defaulting, they are being cast out…certainly looks that way anyway..are we going to wake up Monday morning with Greece gone..?


  14. @Soapy

    “I often think I should have joined the F.O.” – do you have a Cambridge first?

    Having said that, my impression of the FO (and remember I grew up in diplomatic circles) is that they are there for the intent purpose of being ten years behind the curve in their conclusions. It takes a great deal of diplomatic skill to be so tardy and yet appear up to speed. I believe that the sort of people who get firsts from Cambridge are good at this … somehow I do not see you fitting in.


  15. @BT

    Full circle indeed. I do wonder why the British have a government of two parties, they both seem intent on the same ends. The banks are the only ones laughing.


  16. SITC

    I agree that the Greeks must decide their own future. The big problem at the moment is that the future they want is a lifestyle based on money borrowed from the Northern part of Europe. Whatever conclusions they arrive at must deal with this essential problem, and it will not be very nice for many of them. Remember that Klaus Kastner’s experience of visiting Greece was that many had lifestyles in excess of those in (rich) Austria.


  17. Gemz

    First, Not necessary any more. Last fellow I knew who joined the FCO had dropped out of Cambridge after two years and then gone to Nottingham where he got a 2.1.


  18. Re merkel’s intentions: read today’s FT article A very Federal formula. It’s all there. Interestingly, not one mention of the UK in the article but plenty about France not liking it. President Hollande will upset the applecart even further, j’espere.


  19. Gemzz, I was going to question your statement that they “appear so up to speed”, then I remembered you “grew up in diplomatic circles”, which would explain it perfectly. I wholeheartedly agree I would in no way fit in with that bunch of.. you can fill it in yourself.


  20. @OAH
    with this new and inspiring blood, perhaps the FO will start to wake up to the needs of the 20th century and not those of the 19th?


  21. I was reading up on the father of Kaiser Wilhelm II, Kaiser Friedrich III who was a moderate – unlike both his father and his son, Wilhelm II. I noticed this interesting note:

    However, Frederick reigned for only 99 days, and was unable to bring about much lasting change. An edict he penned before he ascended to the throne that would limit the powers of the chancellor and monarch under the constitution was never put into effect


    Friedrich III was not able to see this brought to fruition, and one wonders how history would have been changed had he not died of cancer so early.


  22. The notifications of the day at DMN –

    “Fitch fears panic over a Greek disorderly bankruptcy

    Posted: 10:02:12, 12:02 | Last updated: 10:02:12, 12:06

    In unusually alarmist words, the rating agency Fitch has asked Greece to present a saving deal, so that its debt reduction can be carried out. Otherwise there is a threat of panic and capital flight from Ireland and Portugal.

    Greece is threatened by a disorderly bankruptcy. The rating agency Fitch has now, in a precise manner, asked Greece to present a debt cut within a matter of days. Otherwise there is a threat of panic and capital flight from Portugal and Ireland.

    Tony Stringer said at a conference in Singapore: “You have to get this deal into the bag within days, so that they have enough time to prepare the documentation for the new contracts. If they don’t manage to do so, then we have a disorderly bankruptcy.”

    Meanwhile, the EU is, through an involvement of the ECB (here), trying to get the private creditors to agree to a debt cut. This suggests that the next installment could to a certain extent be credited, and the crash would then be avoided (here).

    If the negotiations, however, continue to drag on, then possibly it could also be too late for this “last exit”.”

    In further reports:

    1. “Greece: Already every second youth is unemployed.

    The unemployment rate in Greece rose to a new record high in November: 20.9 percent. In November, more than 126,000 Greeks were no longer in work. Nearly half of all young people in Greece are unemployed.
    Unemployment amongst young people aged between 15 and 25 years rose to 48 percent in November. In November 2010 it was still 35.6 percent. in 2008 it was actually only 22.4 percent.

    The data on industrial production also does not throw a better light on the Greek economy: This fell from -7.8 percent to -11.3 percent in December.
    2. Penalties imposed amounting to 8.6 billion
    Greece: Authorities bring in only 1% of the penalties imposed on tax evaders
    The Troika calls for simplification and revision of the Greek tax system. Taxation in Greece generates virtually no revenue. Only one percent of the imposed fines for tax evasion were collected in 2011 at all.
    On Thursday Pantelis Economou, the Deputy Minister of Finance, announced that over the past two years the state has imposed penalties for unpaid taxes amounting to EUR 8.6 billion. (…) The Greek newspaper Kathimerini has learned from two sources that only one percent of these 8.6 billion euros have been collected. This corresponds to less than 100 million €.

    To now move a thousand or so clicks to the west:

    “Preparations for the next salvation?

    Schäuble secretly filmed as he promises the next bailout to Portugal

    In a TV-video one can see and hear how Wolfgang Schäuble assures his Portuguese counterpart that there will also be alleviations for the Portuguese. But, because of public opinion in Germany one should proceed with caution. (with video)

    (…) In it Schaeuble said to Gaspar in English: “If in the end we need to make an adjustment to the [Portuguese bailout] programme, having taken large decisions about Greece…This is key. But then, if necessary, an adjustment of the Portuguese programme, will be prepared.”

    However, Schäuble also said: “Members of the German parliament and public opinion in Germany do not believe that our decisions are serious, because they don’t believe in our decisions on Greece.”

    Gaspar played the conversation down on Thursday and claimed Schäuble had promised no more than is already known.”


    Moving back several thousand clicks to the East –

    “Housing bubble and credit crunch

    China: Starting increase in inflation

    In January, consumer prices once again rose in China. This puts a spanner in the works of the anticipated easing of monetary policy. In addition, a decline in Chinese exports is expected.


    That should be enough for the moment!


  23. Hence the reason why some of us describe our political parties as Red Labour and Blue Labour. Nowadays, neither have any genuine commitment to free market economics/sound money and personal liberty coupled to responsibility. The Tories used to have, Labour never did. Creeping socialism.


  24. At what point do the police throw down their riot shields and follow the Greek people into their ‘Bastille’? Very shortly in my view. Which just leaves the armed forces…with no pay packets either!


  25. Fantastic! It must be time to arrange a full meeting of the EU political elites and the Brussels cratocracy in Athens and then let the local police know they’re coming… ;-)


  26. @laurence:
    And that fear – which appears to exist in Germany – will remain even if the Greeks come up with a new set of numbers to close the delta.


  27. CL: That is exactly what must not happen, although the EU power brokers appear to be pushing hard in that direction. You cannot subjugate a democratic parliament (however incompetent) and its people. The next step is marshall law and army supression, or all out revolution.


  28. A sense of perspective over our beloved Europe débâcle’: The DT is running images of the Brussels striking fireman breaking a police cordon and hosing down th PM official residence. Le Soir (leading french language paper) has none of it! Don’t frighten the horses, anywhere.



  30. @OAH
    fair enough, but Die Zeit (quality journalism if ever there was) is free.

    But for the number of articles I usually read, I guess your suggestion is the best solution given that they aren’t likely to change just for me ;-)


  31. agree with much but feel they have been too clever at manipulationwith markets not so easily manoevred; Greece situation growing desperate with possibility of their revolt and just going bankrupt


  32. @the Timekeeper

    You make my point nicely. I am aware that the 20th century is now over – but do the foreign office, having woken up from their 19th century dreaming, discovered it too? Somehow I think they are still reading newspapers and wondering why the North Atlantic shipping lines no longer advertise their sailings.


  33. “Since you are continuing this destructive policy, we warn you that you cannot make us fight against our brothers. We refuse to stand against our parents, our brothers, our children or any citizen who protests and demands a change of policy,” said the union, which represents more than two-thirds of Greek policemen.

    As stated before – when revolutions kick off – the ‘enforcing authorities’ have to quickly decide which side they are on – the people or the kleptocrats ? Inevitably they will choose the people because they and their families and friends are the people.
    I still think it will come to the UK (I do not wish it) and likewise wherever else Globalist Corporatism has joined with political cartel to destroy national democracies and freedoms. when all is done and dusted – the ponzi money will not exist as it never did.


  34. I think that for Greece – just defaulting and devaluing will not be enough any more. The Political Cartel (especially in Brussels) have bought a standard of living for the greek people which was unsustainable – but of course they do not want to give up their standard of living – under any circumstances and I am afraid – only Blood (and a lot of it) will salve their anger !



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