Bailout Rebellion in Germany Heats Up

For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, according to a poll published September 16 (FAZ, article in German). In the age group 45 to 54, it jumps to 67%. And 66% reject aiding Greece and other heavily indebted countries. Ominously for Chancellor Angela Merkel, 82% believe that her government's crisis management is bad, and 83% complain that they're kept in the dark about the politics of the euro crisis.

"There cannot be any prohibition to think" just so that the euro can be stabilized, wrote Philipp Rösler, Minister of Economics and Technology, in a commentary published on September 9 (Welt, article in German). "And the orderly default of Greece is part of that," he added. Instantly, all hell broke loose, and Denkverbot (prohibition to think) became a rallying cry against the onslaught of criticism that his remarks engendered.

Even Timothy Geithner, who attended the meeting of European finance ministers in Poland, fired off a broadside in Rösler's direction. In the same breath, he proposed the expansion—through leverage, of all things—of the European bailout mechanism, the EFSF. According to Austrian Finance Minister, Maria Fekter, who witnessed the scene, he warned of "catastrophic" economic risks due to the disputes among the countries of the Eurozone and due to the conflicts between these countries and the ECB. Then he demanded in dramatic terms, she said, that "we grab money with our hands to stabilize the banks and expand the EFSF unconditionally."

The smack-down was immediate. German Finance Minister, Wolfgang Schäuble, took Geithner to task and explained to him in no uncertain terms, according to Fekter, that it was not possible to burden the taxpayers to that extent, particularly not if only the taxpayers of Triple-A countries were to be burdened. A bailout "with tax money alone in the quantity that the USA imagines will not be feasible," Schäuble said. (Wiener Zeitung, article in German).

Vocal support for Rösler came today from a group of 16 prominent German economists. If the government in its efforts to stabilize the euro didn't consider the insolvency of a member country, they warned, Germany would become subject to endless extortion (FAZ, article in German). And to impose a Denkverbot concerning it would be a step back into "top-down state thinking." They further lamented that these policies would turn the Eurozone into a transfer union. If the government wanted to establish a transfer union, it should discuss that with the German voters, they demanded, because it would be a fundamental change in the E.U. constitution and should be legitimized by vote. Otherwise, Germany would be "threatened by a populist movement to exit the E.U."

Meanwhile, on his visit to Rome, Rösler had to face down Italian Finance Minister, Giulio Tremonti, who'd "vehemently" demanded the creation of Eurobonds, sources of the German delegation said (Zeit, article in German). President of the European Commission, José Manuel Barroso, supported Tremonti's demands. But Rösler, like Merkel and others, rejected the idea. Transferring liabilities to other countries would remove pressure from debtor nations to reform, he said, differences in yields being a market-driven incentive to get the budget in order. Eurobonds are also legally impossible, he added, based on a recent decision by the German Federal Constitutional Court.

Eurozone must be honest: Big haircuts for bond holders, debt limits for all, says Die Zeit (article in German). The drama of saving European banks that hold Greek debt, and the debt of other tottering Eurozone nations, has been going on for a year and a half. Each effort to keep Greece on track follows the familiar script. Politicians promise spending cuts. Greeks demonstrate. E.U. inspectors check things out and leave angry. Germans declare that Greece will not get any relief until it fixes its problems. Then Greece notices that it needs yet more money and threatens to default. Germany nods. And the next installment gets paid.

By now, all hope for a happy ending has dissipated. Greece is suffering from a multitude of problems that defy quick fixes, among them a huge pile of debt, an inept and corrupt fiscal system where taxes are simply not collected, dysfunctional institutions, and a government-dominated economy. Even unlimited amounts of money can only defer the end game.

But there are already victims. The most recent one: The concept of an independent, apolitical central bank whose primary purpose is guarding the value of the currency, rather than monetizing the debt of countries that have spent beyond their means.

To see how it all started, read my first post on the Bailout Rebellion in Germany
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France and Germany: One more bailout away from fiscal crisis

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

The debt ratios of the key players illustrates well (first chart) that virtually everyone is courting fiscal crisis. The easy way out of turning to bigger, more solvent governments for bailouts has run its course.  The chamber is empty. Government debt to GDP is running high everywhere. When a country (such as the U.S.) runs near 100% gross debt to GDP and household debt combined with huge future deficits, it’s already dead  on arrival.

Looking at the next dead-on-arrival candidates leads us to Germany and France. Although superficially it appears as if those countries are running a tight fiscal ship,  in reality they are highly exposed to enormous losses via the Troika mechanism they have set up to bailout the weak sisters of Europe. These sisters continue to come for more manna from heaven (tranches), which in turn further weakens the so-called core countries. How many more tranches can France absorb? Finally, France, with a debt to GDP of 88%, is being warned on its bogus, inflated, top-notch credit rating. The mere revelation and recognition of the Troika losses taken by France in particular as well as Germany  puts these countries into the tar pit.

The farce is played out as nations already in the tar pit, like Ireland, beg to take the extra weight placed off of them by having Irish banks take the loss, which in turn nails French and German banks. France and Germany refuse, as if refusing somehow changes the reality of the loss their banks already have. Meanwhile, the nasty austerity program set up for Greece to receive more heroin-drip tranches from the core are kicking in, resulting in a 10.9% drop in retail sales. In the meantime,  the Rube Goldberg machine that has been set up to deliver these tranches is belching and vomiting, as now Italy indicates it may no longer participate in the next outlay to Greece.  Portugal’s banks get all their funding from the ECB and, in turn, fund the Portuguese government while doing almost no lending within that country.  The word, clusterfuck comes to mind. This system is almost akin to having Germany paying war reparations to banksters in the 1920s. It can’t end well. The over-the-counter, shadow-banking, counter-party risk in all this is beyond the imagination, and well beyond the ability of the pseudo-government bailout response.

As if the tar-pit reality of dealing with Greece, Portugal and Ireland was not enough, these pseudo stronger Euro nations and their pseudo solutions will next be challenged with assisting in buying overpriced Italian debt.  Round one of the Troika’s shock-and-awe program last week, has already been completely reversed.

Italian ten year:

This will add further to the losses of the Troika.  As I have been reporting, U.S. money market funds have been withdrawing (some, much more to go) from Eurozone bank commercial paper, leaving Eurozone banks, and most importantly in Spain and Italy (and increasingly France), with a big gap in availability of short-term funding and a severe shortage of dollars. These dollars have jumped from the frying pan into the fire by fleeing into the pseudo safety U.S. Treasurys.

This post is reprinted from Russ’s premium service, Russ Winter’s Actionable. Click here for information.  

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