An �orderly insolvency� for Greece must not be ruled out for the sake of stabilizing the euro, Die Welt reported, citing German Economy Minister Philipp Roesler.Expect a Disorderly Default
�To stabilize the euro there must be no taboos,� the newspaper quoted Roesler as saying in an article to be published in tomorrow�s edition. �If need be, that also includes an orderly insolvency of Greece, provided the instruments needed for that are available.�
Put the "orderly default" theory right up there with the humorous idea "Greece Bond Swap Progressing Well"
If there is a default, what possible reason is there for it to be orderly?
Blame Trichet
A year ago an orderly default may have been possible, but not now, thanks to "We say no to default" Trichet. Indeed, Trichet's stance accompanied by the ECB throwing tranche after tranche of money down the drain in repeated bailouts all but ensured a disorderly default.
Merkel's Coalition Disintegrates
German Chancellor Angela Merkel's coalition has disintegrated right in front of everyone's eyes.
Adding fat to the fire, the German Economy Minister and the German Finance Minister are now in open dispute.
Please consider a snip from Can Government Lies Calm the Markets?
MarketWatch: ... German Finance Minister Wolfgang Schaeuble dismissed a report by Bloomberg News that German officials were readying a plan to recapitalize German banks should their Greek holdings overcome balance sheets.Schaeuble Lie Confirmed
Schaeuble insisted that the agreement reached with Greece in July was still the focus of the government. �To speculate over other outcomes is pointless,� he said, according to Dow Jones.
Mish: Schaeuble's, statements are blatant lies or seriously discomforting truth. In this case, it is hard to know precisely which. I suspect lies (and we should all be hoping for lies) because unless the EU, ECB, and other government officials are making contingency plans for a Greek bankruptcy, there are going to be some very serious consequences soon.
MarketWatch: European Union Commissioner for Economic and Monetary Affairs Olli Rehn told reporters after the G-7 meeting that European banks were better capitalized than they were a year ago.
Mish: There's a lie, especially when the new head of the IMF is willing to admit banks need to be recapitalized.
As suspected, we now have a confirmed lie made by finance minister Schaeuble. It took less than a day to ferret out the truth and mainstream media cannot even get the story correct.
Der Spiegel reports German Finance Minister Prepares for Possible Greek Bankruptcy
German Finance Minister Wolfgang Sch�uble, who is reportedly doubtful that the country can be saved from bankruptcy, is preparing for the possibility of Greek insolvency. Officials in his ministry are currently reviewing scenarios for handling such a situation, exploring what it might mean for the rest of the euro zone. Under the first scenario for a Greek bankruptcy, the country would remain in the euro zone. Under the other, Athens would abandon the common currency and reintroduce the drachma.Sudden Revelation
That's one hell of a sudden revelation given just yesterday Schaeuble stated �To speculate over outcomes other than agreements made with Greece in July is pointless�
Der Spiegel continues ...
The European bailout mechanism, the European Financial Stability Facility (EFSF), is playing a key role in those considerations. Soon the EFSF is expected to be given new powers agreed to by European leaders at a special euro crisis summit in late July. Two instruments at the EFSF's disposal are at the forefront of the Finance Ministry's scenarios.Merkel Allies Break Taboo
Bankruptcy Could Create Credit Crunch
One of these key instruments would be credit lines provided to countries like Spain or Italy if investors stop lending them money after a Greek bankruptcy. If banks were forced to write off the billions in Greek government bonds on their books, they could become reliant on billions in rescue fund aid in numerous euro-zone countries. Both developments are to be expected in a Greek insolvency, regardless of whether the country exits the euro or not.
Volker Bouffier, the governor of the state of Hesse, which is home to Germany's financial capital Frankfurt, is a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) party, as is Sch�uble. Bouffier is now urging that the possibility for countries to leave the euro zone be created quickly. Current European Union treaties provide no provisions for a country to abandon the currency.
"If the savings and reform efforts of the Greek government aren't successful, then we need to ask the question of whether we need new rules to make it possible for a euro country to leave the currency union," Bouffier told SPIEGEL.
Please consider Merkel allies break taboo with Greek default talk
Senior politicians in German Chancellor Angela Merkel's center-right coalition have started talking openly about a Greek default, reflecting mounting concern in Europe's biggest economy about the debt crisis and pressuring Greece.While Schaeuble readily dispensed with lies, behind the scenes the Merkel government was clearly preparing for bankruptcy.
"To stabilize the euro, there can no longer be any taboos," Philipp Roesler, economy minister and leader of Merkel's junior coalition partner, the Free Democrats (FDP), told Die Welt.
FDP general secretary Christian Lindner went further, telling the Berliner Morgenpost his party had not ruled out the possibility of Greece leaving the euro zone.
Even senior figures in Merkel's conservative Christian Democrats (CDU) are leaving open the possibility of default.
"The way things are looking, you can no longer rule out a possible Greek restructuring," CDU budget expert Norbert Barthle told Reuters when asked about a default or euro zone exit.
The stakes are high for Merkel who is battling to convince rebels in her coalition to vote for new powers for the European Financial Stability Facility (EFSF) on September 29.
Although she will get the law through due to support from opposition parties, if she fails to secure a majority from the ranks of her own coalition parties her authority will be seriously dented and she may even have to call elections.
Some members of her party have raised questions about Greece's continued membership of the euro zone.
"If the Greek government's efforts to make cuts and reform are not successful, we must also ask the question whether we do not need new rules which make possible the exit of a state from the currency union," Der Spiegel quoted senior CDU member Volker Bouffier as saying.
Merkel herself has ruled out an expulsion of Greece, saying it would trigger a domino effect, but rifts have been opening up in her coalition on the subject.
On Saturday, the conservative Christian Social Union proposed threatening heavily indebted states with having to leave the currency union.
Merkel is in a bind as she tries to push an agenda of greater economic integration as Germans grow more skeptical. A poll this week found 76 percent of Germans opposed to granting any further aid to heavily indebted Greece.
Former German foreign minister Joschka Fischer fed public concern, saying on Sunday the euro could even collapse.
"The situation in Europe is really as serious as it has ever been. Until now, I did not think the euro would fail, but if things continue like this then it will collapse," Fischer, foreign minister for the Greens in their coalition with the Social Democrats from 1998-2005, told Bild am Sonntag.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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