bring on the blitzkreig

It looks like the Germans are being backed into a corner by the ECB
that's like a mistress who won't stop maxing out the Germans' credit card.

Now the German leadership is showing some of the teeth and evil
that made WWII the spectacle it was.

Once again, they're picking on the Greeks. I say "bring it on".
We've been waiting for this showdown for 2 years now.
They know that a haircut, orderly or disorderly, will shoot down
their overleveraged toxic banks and start the dominoes cascading.

But, I think the Germans are logical people and when logic doesn't work anymore,
the Germans get very daring and very creative.

checkitout: Telegraph

Germany and Greece flirt with mutual assured destruction
Bild Zeitung populism has prevailed. Germany is pushing Greece towards a hard default, risking the uncontrollable chain reaction so long feared by markets.

By Ambrose Evans-Pritchard, International Business Editor

7:35PM BST 11 Sep 2011

126 Comments

First we learn from planted leaks that Germany is activating "Plan B", telling banks and insurance companies to prepare for 50pc haircuts on Greek debt; then that Germany is “studying” options that include Greece's return to the drachma.

German finance minister Wolfgang Schauble has chosen to do this at a moment when the global economy is already flirting with double-dip recession, bank shares are crashing, and global credit strains are testing Lehman levels. The recklessness is breath-taking.

If it is a pressure tactic to force Greece to submit to EU-IMF demands of yet further austerity, it may instead bring mutual assured destruction.

"Whoever thinks that Greece is an easy scapegoat, will find that this eventually turns against them, against the hard core of the eurozone," said Greek finance minister Evangelos Venizelos.

Greece can, if provoked, pull the pin on the European banking system and inflict huge damage on Germany itself, and Greece has certainly been provoked.

German court curbs future bail-outs, bans fiscal union
07 Sep 2011
German austerity drive risks Euro-slump
06 Sep 2011
Switzerland abandons floating exchange rate
06 Sep 2011
German endgame for EMU draws ever nearer
04 Sep 2011

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets. They had better be well armed. The headlines in the Greek press have been "Unconditional Capitulation", and "Terrorization of Greeks", and even “Fourth Reich”.
Mr Schauble said there would be no more money for Athens under the EU-IMF rescue package until the Greeks "do what they agreed to do" and comply with every demand of `Troika' inspectors.
Yet to push Greece over the edge risks instant contagion to Portugal, which has higher levels of total debt, and an equally bad current account deficit near 9pc of GDP, and is just as unable to comply with Germany's austerity dictates in the long run. From there the chain-reaction into EMU's soft-core would be fast and furious.

Let us be clear, the chief reason why Greece cannot meet its deficit targets is because the EU has imposed the most violent fiscal deflation ever inflicted on a modern developed economy - 16pc of GDP of net tightening in three years - without offsetting monetary stimulus, debt relief, or devaluation.

This has sent the economy into a self-feeding downward spiral, crushing tax revenues. The policy is obscurantist, a replay of the Gold Standard in 1931. It has self-evidently failed. As the Greek parliament said, the debt dynamic is "out of control".

We all know that Greece behaved badly for a decade. The time for tough love was long ago, when the mistakes were made and all sides were seduced by the allure of EMU.

Even if the Papandreou government met every Troika demand at this point, it would not make any material difference. Greek citizens already understand this, and they understand that EU loan packages are merely being recycled to northern banks.

Instead of recognizing the collective EU failure at every stage of this debacle, the creditor powers are taking out their fury on what is now a victim.

We have never been so close to EMU rupture. Friday's resignation of Jurgen Stark at the European Central Bank is literally a kataklysmos, a German vote of no confidence in EMU management. Dr Stark is not just an ECB board member. He is the keeper of the Bundesbank's monetary flame.

The vehemence of his protest against ECB bond purchases confirm what markets suspect: that the ECB cannot shore up Italian and Spanish debt markets for long without losing Germany.

"I look at what is happening in EMU and the words that spring to mind are total and utter disaster", said Andrew Roberts, credit chief at RBS. He thinks German Bund yields could break below 1pc in the flight to safety.

Citigroup and UBS both issued reports last week on the mechanics of EMU break-up, both concluding with touching faith that EU leaders cannot and will not allow it to happen.

"The euro should not exist," said Stephane Deo from UBS. It creates more costs than benefits for the weak. Its "dysfunctional nature" was disguised by a credit bubble. The error is now "painfully obvious".

Yet Mr Deo warns that EMU exit would not be as painless as departing the ERM in 1992. Monetary unions do not break up lightly. The denouement usually entails civil disorder, even war.

If a debtor such as Greece left, the new drachma would crash by 60pc. Its banks would collapse. Switching sovereign debt into drachma would be a default, shutting the country out of capital markets. Exit would cost 50pc of GDP in the first year.

If creditors such as Germany left, the new mark would jump 40pc to 50pc against the rump euro. Banks would face big haircuts on euro debt, and would need recapitalization. Trade would shrink by a fifth. Exit would cost 20pc to 25pc of GDP.

UBS concludes that the only course is a "fiscal confederation", a la Suisse.

Well, perhaps, but Germany's top court chilled such hopes when it ruled that the Bundestag's budgetary powers may not be alienated to "supra-national bodies". Nor do I believe that German society is willing to undertake such a burden for Greco-Latins in regions equal to six times East Germany.

Citigroup's Willem Buiter disputes the "federalism or bust" dichotomy, saying Anglo-Saxon commentators are trapped in the mental world of the Peace of Westaphalia in 1648, which established the sovereign state as pillar of international order.

"There is no recent, close analogue to the EU," he says. As a blend of national and supra-national, the EU resembles the Holy Roman Empire, which united central Europe from the 10th Century until Luther (technically until 1806).

Dr Buiter says the two "canonical models" for EMU break-up - that debtors walk out, or the German-led core walks out - are both are fraught with perils.

The weak would sell their souls for a mess of potage, discovering that devaluation can be an "uncontrollable process" with little lasting gain for exports.

If the German bloc left to create a "Thaler", the costs would be less. However, the rump euro would fall apart, with massive dislocations. "It would not be pretty," he says.

Ultimately, political investment in the EU project is by now too great to entertain such thoughts. The eurozone will muddle through along a third way, with spasms of debt restructuring kept within the euro-family. It will fall short of a transfer union or a debt pool, he said.

Each of these reports is a terrific read, but as an unreconstructed Westpahlian - and having covered a lot of NO votes to EU referendums - I don't accept that Europe has a teleological destiny towards closer union.

It has already pushed its ambitions beyond the tolerance of Europe's historic states and cannot be made democratically accountable.

The new fact of recent months is that German society has begun to discern a clash between its own democracy and the fiscal drift of EMU. The two are seen to be in conflict for the first time. Germans may be forced to choose. The outcome to that is far from clear.

Nor do I accept the headline figures of UBS. Every Treasury official and every voice of orthodoxy warned in 1931 that British exit from the Gold Standard would unleash the seven plagues. It proved a liberation. The UK, the Empire, and allied states broke free from a system that had become an engine of deflationary Hell. It cleared the way for monetary stimulus and recovery.

There is a close parallel between 1930s Gold and EMU, both in destructive effect and totemic sanctity. The Gold Standard was more than a currency system. It was the anchor of an international order and way of life.

My solution - like that of Hans-Olaf Henkel, the ex-head of Germany's industry federation (BDI) - is to split EMU into two blocs, with France leading a Latin Union that keeps the euro. This bloc would devalue but not by 60pc, yet uphold its euro debts intact. The risk of default and banking crises would decrease, not increase.

The German bloc could launch their Thaler, recapitalizing banks to cover losses from rump euro debt. Disruptions could be contained by capital controls at first. None of this is beyond the wit of man. My bet is that aggregate losses would be lower than the status quo, and the long term outcome much healthier. The EU might even carry on, unruffled.

The status quo, however, is not acceptable. EMU's debt-deflation strategy has trapped half of Europe in depression, with youth unemployment reaching 46pc in Spain and no way out for years.

Perhaps a global coalition of the G20, IMF, China, and the oil powers will combine to rescue Euroland, as some now hope. But how would that bridge the gap between EMU’s North and South? It solves nothing.

get ready for carnival early this year

Game Over? Senior IMF Official - "I Expect A Hard Greek Default This Year"

Submitted by Tyler Durden on 09/03/2011 15:09 -0400

While the US was panicking over a double zero jobs report, things in Europe just fell off a cliff. As both the WSJ and Reuters report, it seems that the second Greek bailout, following repeated and consistent disappointments by Greece which has resolutely refused to comply with the terms of its fiscal austerity program, has just collapsed. And with the US closed on Monday: long a counterbalance to European risk pessimism, this week (especially with the news from the latest FHFA onslaught against global banks) may just be the one that "it" all comes to a head. But back to Europe, and more specifically Greece, which it now appears is doomed. "I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim." It is not only Greece - Italy also thought it would sneak by with getting quid pro no and continue leeching off of Europe, or specifically Germany, indefinitely, at least until the ECB said that absent Berlusconi taking austerity seriously that implicit ECB support for Italian bonds would be yanked, sending the second most indebted country in the world into a toxic debt tailspin. And so it comes that after 2 years of waffling, Europe finally realizes that the piper always eventually gets paid. Alas, it is now far too late.

From the WSJ:

Talks over new bailout funds for Greece were suspended Friday amid disagreements over how to fill a government-deficit gap that once again is veering off track, raising doubts about the country's future access to finance and triggering renewed nervousness in financial markets across Europe.

The suspension pushed yields on Greek government debt to levels indicating that investors see a default by Athens soon as a near certainty: Interest rates on one-year paper blew out past 70% and two-year yields rose close to 50%.

The continent's stock markets also retreated, with the French market down 3.6% and the German market down 3.4%.

The suspension of the talks in Athens between the government and a group of officials representing the providers of Greece's bailout cash came, officials said, amid a dispute about how to address new gaps opening up in the government budget deficit.

"The Greek side insisted the missed targets are the result of the recession. The troika said recession played a part, but Greece basically didn't keep up with its commitments, so more measures will be needed to make up for the lost ground," said a person with direct knowledge of the talks.

"There is a clear disagreement that can't be bridged today," the person added.

Will it be bridged in mid-September, and is a market and EURUSD crash all that will take, as has been the case constantly? We will find out soon, although it increasingly appears improbable...

"I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim."

Failure of Greece to meet its targets, growing reluctance by some euro members to continue lending and the fact that private-sector participation in a second bailout won't significantly alter Greece's debt profile are the primary factors, the IMF official said.

It gets worse: as Reuters confirms, the political turmoil has already spread to Germany, where all that is needed for wholesale conflagration that will sweep Merkel out of the cabinet is a tiny spark. This may just have been it:

Christian Lindner, general secretary of the Free Democrats, (FDP) junior coalition partners in Chancellor Angela Merkel's center-right government, said Athens was endangering European solidarity.

"The breakdown of talks between the Troika and Greece is a blow to the stability of the euro," he said at a news conference in Berlin.

Referring to Greece's failure to meet deficit targets set in exchange for a second bailout package, Lindner said Athens was shirking responsibilities to which it had agreed.

"This is not about non-binding statements of intent, but contractually secured reciprocity for the emergency loans," he said. "We insist these agreements are observed."

Goodbye Greece:

Separately, senior FDP official Hermann Otto Solms, a vice-president of the Bundestag and an economy committee member in parliament said since Greece could not handle its debt problem and it should consider leaving the euro.

ooh...thank god..... Greece was saved...yawn

Well, the Eurobank and Alphabank banks don't have a dime, but they've combined
their nothingnesses into one big empty vault.
Now, a nice man from Qatar has arranged a sweet deal with the ECB to hide the
fact that those merging banks have no collateral. He will be paid handsomely.
The ECB will avoid admitting defeat for a few more days. All is well.

checkitout:
Greece Ups the TBTF Ante With Merger Of Alpha Bank And Eurobank, Creates Largest (Jointly Insolvent) Bank In Southeast Europe
Submitted by Tyler Durden on 08/29/2011 07:49 -0400
As of minutes ago, the speculation that Greek Alpha Bank and Eurobank are merging, in the process creating the largest Greek bank, and first TBTF candidate, has been confirmed, leading to a 30% jump in the stock prices of both Alpha and Eurobank. Not only that, but as AP reports, "the news triggered a Greek share rally, with the benchmark General Index on the Athens bourse gaining more than nine percent in early trading. On Friday, it had hit its lowest in nearly 15 years due to concerns over the future of the country's latest rescue package. The banking sector was up nearly 20 percent, while shares in National Bank of Greece, the country's largest lender, were up 29 percent." This move, which is nothing more than an attempt to pool deposit bases at these two very troubled institutions and thus prevent a bank run, needed a back stop to be credible: sure enough here comes the Petrodollar patsy: "Qatar Investment Authority (QIA), which is already an Alpha shareholder, is expected to take a bigger stake in the new bank. QIA holds 5% of Alpha and is expected to take 15% of the merged entity." The new bank will be the biggest bank in southeastern Europe, with assets of 146bn euros ($212bn; £129bn) and 1,300 branches. Eurobank shareholders will receive five new Alpha Bank shares for every seven Eurobank shares they own. And what would a bank merger be without ridiculous talk of synergies: The banks estimate that the merger will create about 650 million euros of synergy saving per year. Naturally nobody cares about this, as long as the first stake in the Greek bid for TBTFness proceeds as planned. That this step only delays the inevitable is irrelevant: for now the buying spree must resume. We fully expect the pro forma entity to eventually subsume all other Greek banks before finally it reverse mergers with the hollow ECB shell.
From AP:
Greece is in the throes of a major financial crisis, and only avoided bankruptcy after two international bailouts agreed over the past two years, worth a combined total of €219 billion ($315 billion). Central bank and government officials have repeatedly urged bank consolidation, arguing it will afford them greater protection from the fallout of the crisis.
Eurobank and Alpha, Greece's second and third-largest banks, told market authorities that their boards would be meeting later Monday to discuss the merger, as well as a capital boost for the new bank. While rumors of the impending deal broke over the weekend, the private lenders have made no official announcements yet.
And from the BBC:
Eurobank has recently sold its Polish subsidiary and promised to raise its capital further after failing EU-wide bank stress tests.
As major debtors of the Greek government, Greek banks have fared particularly badly in the sovereign debt crisis, surviving only with the assistance of the European Central Bank.
The second bailout for Greece will involve its banks having to accept lower interest payments on their holdings of Greek government bonds, albeit over a longer period.
Alpha Bank rejected a merger offer from the country's biggest lender, National Bank, in February.
Sure enough the government is giddy as it sees that the banking sector has finally understood that it needs to get big, big, big for the Eurozone to not let it to implode:
The planned merger between Eurobank and Alpha Bank comes as rare good news for the Greek government, which has been calling on the country's banks to pool their resources.
We congratulate this latest improvised moment in can kicking: in the meantime, we hope to shortly update readers on the €10 or so billion in deposits pulled out of Greek banks in the most recent month as the NBG data is updated.