While Angela Merkel did a bit of overseas wandering about last week, the spin from Berlin was ‘Chancellor building her Statesman credentials for the next election’. There was a trip to Afghanistan as part of this, something that took everyone by suprise – and looked nonsensical given Germany’s light military presence there. But it was a feint – a distraction. She flew straight from Afghanistan to Rome, and all points thereafter on a whistle-stop return to Berlin. The mission, I am very reliably informed, was to sound out opinion on the choice of her finance minister Woflgang Schauble as the next head of the 17-Nation Eurogroup…..to replace Jean-Claude Junckermann, who is finding the job too onerous on top of his responsibilities as the top DJ on Radio Luxembourg.
A Parisian diplomatic source confirms (in the light of yesterday’s Spiegel story about Schauble’s future) that Merkel discussed this possibility with Nicolas Sarkozy before taking the trip, and that his response was “polite but equivocal”. I wonder why. The French President has since told Elysee staff that he is “very concerned that once again Berlin seems to be consolidating its power in the EU”. I understand he has asked Frau Merkel to delay the decision until after the French Presidential Election.
Full engagement in plotting this move may explain the lack of noise from Berlin all week. Wolfgang Schauble contented himself with just the one swipe at hasty Greek elections and their potential for promise-breaking.
Overall, in fact, it was a week significant for what never took place.
EUROCRISIS: A week in which what didn’t happen was far more important than what did.
Most of the business media lost interest in the eurozone for much of this last week. Those who still refer to ‘the bailout’ gaily continue to refer to the ’39bn euros used from the EFSF fund’ although in reality none of it came from there: truth be told, the eurocrats are only just over halfway through the notional ‘non-cash’ paper manufactured by Mario Draghi’s ECB the week before.
The real Greek bailout was one of many things reputed (and reported) to have happened that didn’t. And one must ask, therefore, why not. I would submit that Mario Monti got his way about the 130bn EFSF money earmarked for Greece going to Italy instead. And because the likes of J P Morgan are very good at selling funny-money but diffident about receiving it, I’d also wager that Signor Monti will use a great deal of the 130bn not to stabilise and then stimulate the Italian economy, but rather to pay off over-collateralised debt that could blow the entire global financial system apart.
Sniffing around the markets over the last few days, it was obvious that anyone even half-connected to sovereign credit knew exactly what had been done with Greece. For most of those I spoke to or emailed, the dual take-out was (a) I wouldn’t now touch Greek bonds with a bargepole and (b) the Troika has no faith whatsoever in a Greek return to the markets any time soon…or even a survival within the eurozone. A majority had also turned to speculating about when the next ClubMed crisis would start the whole manic Carousel off all over again…and who would be the target.
For myself, I am still devoting some time to analysing the nature of, and reasons for, Greek collapse: not because they are particularly important to the eurozone economy, but because of the ither forces likely to be released when it happens. By that I mean both the behaviour of other ClubMeds, the response of the markets to being led up the garden path yet again, and the contagion of the real money system by the Pixie-dust obligations and bets created and made by investment banking firms over the last fifteen years.
We need to look at what’s bubbling under. Yet another IMF report was leaked last night showing that Greece is screwed. This is no accident: it’s part of the ‘Undermine Athens’ lead-up to pulling the plug at the earliest opportunity The Slog predicted last weekend. Lagarde wouldn’t be leaking like this without the Sprouts and the Berliners having given her the nod. So I’d imagine that options are being weighed in the now certain arrival of Greek insolvency.
Equally, with indecent haste Evangelo Venizelos jumped ship earlier in the week to devote himself more fully to himself….that is, taking over the PASOK leadership and campaigning to make up lost ground in the opinion polls. As far as I know, the election date is still set for April 29th; but whatever the date, this has to be one of the greatest derelictions of duty ever seen – even from a Greek politician. The extrapolation from this has to be that Evangelo thinks the ‘bailout’ is a joke anyway; and he’d really rather be somewhere else when the solids start flying about. (“Everything at the office was just fine when I left….”).
Adding weight to that view is another thing that didn’t happen yet: the full Athens delivery on some of the more bonkers demands made by the Troika. This may have something to do with the fact that, as yet, the Troika itself hasn’t done any moaning about it. And that in turn probably reflects the fact that, with only invented funny-money at stake, maybe they think there’s no point in bothering: “Greece is in a bucket bound for Hell, so let’s look the other way as it passes our window”. Venizelos, you may recall, was supposed to be in charge of fiddling the Constitution in order to meet the needs of Troika control freaks. I see no sign of that being even started as yet.
So, no real money was handed over, no cries of pain from Berlin, no let-up in the ‘Greece is dead’ leaks by the IMF, no political kudos seen by Venizelos in staying to take the credit for Greek salvation, no action by Athens on the i’s and t’s of the Brussels Accord, and no accusations from the Troika about that. But a concerted push for Berlin to get a firm grip on the eurogroup.
That all adds up, I think, to something both nasty and imminent. Here’s what a good French source tells me:
“I think all of them [the Troika and Berlin] are working entirely on the ‘we give you enough rope to hang yourselves’ principle. We help you tie the noose, then we point out your crimes of perfidy….and then with genuine regret, we pull the trapdoor, and you’re dead”.
I still think there will be more significant things to look out for next week. And I would list these as:
1. Troika leaks about Athens backsliding on the Brussels Accord reform implementation
2. Generalised EU/Troika leaks about bad economic signals in Greece
3. Complaints from Berlin and Brussels about the first Greek Party manifestos to appear
4. Concern being shown by the Troika in relation to ‘hidden’ Greek obligations
5. Last minute constitutional hitches in Athens
6. The Troika bleating about English Law participation in the swap being “surprisingly low” and thus knocking the 2020 target off course again.
7. Non-acceptance by March 20th maturity-creditors of the Draghi funny-money which, one assumes, Athens will have to use.
For me, however, the most significant move of the week was the decision to use that flaky ECB bond issuance in the first place. And as only about 60% of that has been used thus far, it is tempting to speculate that – with no real money having been lost – the EU may decide to keep up the appearance of Greek survival beyond March 23rd.
The only thing I can tell you on this quiet Saturday is that Washington will probably acquiesce in that view if it is the prevailing one. But that the Fed remains anxious about when the deed will be done should not be ignored.