Earlier Slog scoop confirmed by Der Spiegel: Italy in the same boat as Greece from Berlin standpoint
Merkel….now two stars to leave the eurozone?
“This is effectively saying to a patient, ‘No more medicine until you get better'”.
As Greek bond yields peaked and Italy looked increasingly wobbly, the Swiss National Bank intervened this morning to buy against the Franc ‘indefinitely’ to stop its rise. From Berlin, however, more details are emerging as to how and why Chancellor Merkel cut Greece’s debt-mountaineering rope yesterday…..a reality that, so far, very few outside the credit sector appear to have noticed. And ithis afternoon, Der Speigel suggests the same German attitude now applies to Italy.
Following the Slog’s piece of earlier today on Angela Merkel’s leaked commitment to stop Greek bailout payments immediately if it falls behind on debt and asset sale schedules, the news has largely been ignored by European markets. Some smart, very short-term money has undoubtedly gone into European stocks this morning BST. It’ll be in and out quicker than a rat in a hornet’s nest. This is fast profit-taking while the dumb and/or denialist money is still catching up: as the day progresses, more details are emerging from Berlin to both back up, flesh out, and grow the story with which The Slog was way ahead of the field at 7.32 am this morning.
Yesterday (Monday) was a busy day for German Chancellor Angela Merkel. Her Coalition hammered in the Pomeranian elections, she faced a bevvy of panicky colleagues and partners before midday. Word had already come in from an inspection team (made up of representatives from the EU, the IMF and the European Central Bank) that they’d left Athens early with a bad case of the hump. Der Spiegel posted this two hours ago:
‘Greece, they found, isn’t doing enough to implement the massive austerity package passed in the summer. Even simple steps haven’t been taken, the group, known as the “troika,” complained….Athens has fallen so far behind in its austerity measures that murmurings that Greece should exit the euro zone are no longer the exclusive domain of the political margins of Merkel’s government coalition….Italy too has proven a problem child when it comes to fulfilling austerity promises made, and the government of Prime Minister Silvio Berlusconi is not cutting a good figure as it scrambles to get the country’s exorbitant debt under control….Several belt-tightening measures that were initially proposed by the Berlusconi government were quickly discarded in the face of protests.’
In the light of this, the conclusion drawn during Sunday by leading German opinion-formers on the Bundestag and banking circuits was swift: ‘these people [both Greece and Italy] are taking the piss’. Come Monday morning, several senior CDU MPs allegedly “demanded” that the Athens Government be thrown out of the eurozone for starters. Certainly, the ‘Inspection Team’ reports about Greece being way behind on cost reduction and asset sales mirrors my information from sources exactly.
It seems that it this point it became clear – Reuters also had this earlier today – that the backsliding in Athens had ‘put a new aid payment from the country’s international lenders at risk’….but obviously, mainly Germany. Later yesterday, as that news spread, what has been termed an ‘internal test vote’ among the parties of Angela Merkel’s coalition actually cast serious doubt on whether the German Chancellor would get a majority in the lower house of parliament without the help of the opposition.
Now enter another wild card: a big spike in the yield of Greek 10-year bonds to a staggering 19.4%. (A year ago, it was 9%). And it was holding. 1 year and 2 year were at 50% and 70% respectively. This was the markets saying they’d given up on Greece. And Italian yields were spiralling too.
Said one Europe-based credit manager this morning, “I’d say that somebody – probably Flosbach [CDU finance boffin] – told Merkel at this point ‘It’s all over’. So she went on later and told the key players ‘OK, the minute Athens falls behind, that’s it – no more help until you catch up. This is effectively saying to a patient, ‘No more medicine until you get better’. It’s a death sentence. She’s cutting the rope. She has no choice but to say this in the current German political environment. As to whether she sticks to the promise, well….she’s a politician.”
It now looks as though the German Chancellor also included the opposition SPD Party in her discussions; and it seems highly likely that Merkel’s private assurances were deliberately leaked. I understand, however, that there is now a consensus in the Bundestag that ‘enough is enough’, and there is no point in throwing good money after bad. (Notable this morning in quality newspapers across the EU was the number of individual and syndicated articles by German politicians overtly saying ‘Germany will go so far and then no further’).
In concert with the Forex site prediction of this morning, John Robson, Chairman of leading Wealth Managers Full Circle, is adamant that the market has now finally written Greece off.
“19.4% is the market’s way of saying the game’s up,” he observed, adding, “I have said for months that Greece would have to leave the euro, because it cannot possibly sustain the debt, and the EU cannot afford to have a string of defaults in the zone. There is no middle ground on that one”.
Others go further, pointing out that this is a new process itself almost without end: next up is Italy. Der Spiegel is taking the Slog story on some distance by saying Italy will be next off the precipice if it doesn’t get a move on. Few are surprised.
“Once you say to Italy we will not allow you to fail, they then have the upper hand,” said David Mackie, an economist at J.P. Morgan in London. “There has been a moral hazard issue with Greece for some time. Now we have one in Italy too.”
And after that – Spain. Then Portugal, Ireland….and of course, what you’re left with is this ‘eurozone’ that Der Spiegel yesterday reported Angela Merkel as ‘investigating’ in the context of ‘a new eurozone treaty’.
This bit is my own pure speculation: but I wonder if Merkel is now creating a new ‘Premiership’ European Union. And I wonder where that will leave Britain.
I doubt very much if we will be invited to join it. And I doubt very much if any thought has been given by Camerlot – Dave, the Draper and the Mekon – as to who our new main trading partner will be.
History is indeed being made. I wonder when anyone will notice?
Related – from the Archives: Where is the imagination in UK foreign policy?
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