German Finance Minister Prepares for Possible Greek Bankruptcy

[marmar]

from Der Spiegel:




With doubts growing about Greece's ability to implement important savings measures and reforms, there are concerns that insolvency may be inevitable. In Germany, officials in Wolfgang Schäuble's Finance Ministry are exploring what Athens' financial collapse would mean for the euro zone.

German Finance Minister Wolfgang Schäuble, 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.

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.

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. .........(more)

The complete piece is at: http://www.spiegel.de/international/europe/0,1518,785482,00.html

[golfguru]

1. Gloomy Forecast for Europe's Banks

http://online.barrons.com/article/SB50001424053111904637304576434180949687522.html?mod=BOL_twm_fs#articleTabs_panel_article%3D1

[Turbineguy]

2. I think the German banks want Greece to default

that way they pass the buck to the American banks that sold them default insurance. The German bank problem goes away in a flash and the USA picks up the tab and the European bank stocks soar. Parceling out this Greek bailout has insured that every few months we get a new (mostly manufactured) crisis. Will they default this time?

For speculators crisis brings volatility and volatility brings profits.

The Deutsche Bank is leveraged to the hilt (1.7% actual reserves) and a bank run would wipe them out in a few hours.

They are in a way right, sticking the Americans with the costs since it was Americans that helped the Greeks lie their way into the Euro.

[westerebus]

3. What makes you think we hold the short end?

I'm thinking the majority risk is on their side of the pond.

The reason Americans helped the Greeks is.... we loves their freedoms...


:rofl:

[Turbineguy]

4. Consider this analogy:

Every few weeks your drunken Uncle who lives with you, lights his bed on fire because he smokes in bed and he's drunk. But every time the damage is just below the threshold of your insurance policy deductible.

Wouldn't it be better if he just burned the whole fucking house down so you could collect on the insurance?

[westerebus]

5. Oh, that drunk uncle.

Poor fellow died in the bath tub. Liquidity issues listed as cause of death.

[Turbineguy]

6. Very drol

Sir!

[westerebus]

7. Two L's

If you like my attempted humor.

One L will not count in scrabble, although it does exist in the 'merican lexicon.

While it wouldn't surprise me, I'd have thought the Wall Street Mob playing the EU bond market covered the risk on by now.

Then again, they do have their team in the WH. Brussels. Paris. The City, Holy and other wise.

I suppose the Bernank could repo the 1.6T of GSE notes he holds if he wants to.

That was the back up for BAC. Oh, did I say that?

Never mind. Bad idea.

[Turbineguy]

8. The Europeans

have a multiple hundred year head start on the Americans when it come to this type of stuff. That worries me. I think the Germans are going to use this event to de-leverage themselves at U.S taxpayer expense. We shall see.