Merkel….doesn’t trust Athens

German paper Handelsblatt’s article ‘used as plant to prepare ground’

Athens wonders: do Germans not trust Atonis Samaras, prefer to save 130bn euro bailout?

On the eve of a major FinMinCom session in Brussels to ‘approve’ the Troika demands regarding Greek cuts and debt schedules, The Slog has unearthed sensational  allegations being made in Greece, France and Germany this morning. The gist of these is that Berlin wishes to engineer a technical sovereign failure – perhaps even  with Greek bondholders’ covert approval – and leave the Greek Government without a voluntary bondholder haircut to stave off default.

Paris, Brussels, Athens and Berlin are awash with briefings, claims, allegations, rumours, spin and counter-briefings this morning, following a sensational article that has appeared in the German newspaper Handelsblatt. The paper cites unnamed central bank sources as saying the country will fail to achieve that goal, leaving the government little choice but to make the write-down mandatory for investors holding out. Requiring investors to take a loss would prompt credit rating agencies to declare a debt default for Greece.

The prominent German daily made no distinction as to whether the the sources were at the ECB or the Bundesbank, but since picking up the story I have been able to establish with a degree of certainty that at least one of the sources is in the German Central Bank.

However, a French source maintains that the article is a ‘sting’ – or a plant with Handelsblatt’s knowledge – designed to prepare the ground for Greece’s Athens negotiators to carry the can when bondholders walking away from the deal. And MSNBC this morning quotes ‘A European official’  saying that a push by some euro nations for a reduction in a €30 billion ($40 billion) “sweetener” Greece has been negotiating with private creditors is likely to fail.

But both French diplomatic and Greek sources now think there is a strong possibility that this is the idea.

Far-fetched as this sounds, there are solid grounds for believing in its possibility – perhaps even likelihood. A reliable Brussels source relayed to me yesterday that ‘senior eurozone governments’ were actively considering how the bondholders could be further squeezed, and this morning the Wall Street Journal had a similar interpretation about ‘reducing bondholder sweeteners’. Also we still have the bizarre situation of Berlin quibbling about 325m euros of further cuts – as reported by The Slog last Saturday – at less than a tenth of 1% of the debt total.

Suspicions were further raised in both Berlin and Athens yesterday when first, the likely next Greek Prime Minister, New Democracy leader Antonis Samaras, told associates that ” As soon as the bond swap procedure is concluded we will demand the dissolution of Parliament immediately. We are clear, we are in position to impose elections and we will do so. I want to avoid the jump over the cliff today, to buy time, to restore normality, and then go to elections tomorrow.”

I understand Berlin took this very badly. Yesterday later on, Angela Merkel made a point of publicly contradicting Samaras to say that “”An amendment to the programme can’t and won’t happen” – yet another brazen invasion of the democratic right of a Member State’s citizens to vote whichever way they like.

Both Germany and Greece’s other official creditors have sought to tie the hands of Greek politicians after elections expected in April, seeking assurances they will back the unpopular package after then. These have not been forthcoming.

“It looks to me like Berlin has decided enough is enough,” said a Paris source, commenting on the Handelsblatt story, “In theory they [Berlin] could do a deal direct with the bondholders to let Greece go and maybe repay them at around the 70% haircut level out of the EFSF or the ESM in the summer. A lot depends on whether the sources were ECB or Bundesbank…or both.”

Shortly after 10.15am GMT (an hour ahead of Frankfurt) The Slog’s ‘Bankfurt Maulwurf’ offered this opinion:

“This could represent a step back towards sanity on her [Merkel’s] part, but it might also be catastrophic because it is too little too late. I am sure that were Berlin and Frankfurt caught doing such a thing, the markets would immediately write off all the latin EU States. Certainly I cannot confirm this, but naturally they would deny it until Hell freezes.”

Not exactly a straight answer, but if the bloke doesn’t know, then he doesn’t know: and as always, his observation is sensible.

I have also spoken to my bondholder source, now sufficiently removed from the front line to comment even more frankly.

“It’s a f**king den of thieves,” was his crisp opener, “and although I’ve been out of it for a while now, I know that all trust between the Greeks and pretty much everyone else has gone. If Berlin is planning this, they just better make sure they are squeaky-clean, otherwise the markets would go nuts.”

They might: but as I noted earlier this morning, market opinion leaders are one thing, mainstream investors, bondholders and cynical Hedge Funds another. They might well regard such a maneouvre by the Merkel-Schauble-Draghi axis as hard-headed – and thus, on the whole an encouraging sign.

“My personal view is this would be a hugely risky play to make,” the bondholder informant continued, “although I think if they did I would entirely understand their instincts. The general view now is that the Greeks will take the money and run. But you have to ask where that leaves the other ClubMeds. I mean, maybe Berlin doesn’t care any more. I’m pretty sure the Bankfurt bigwigs don’t….they just want Germany off the hook. If nothing else, if this story proves to be true, it would certainly take them off the hook forever.”

From Berlin’s viewpoint, all they would have to do then is move things along to FiskalUnion. And the fewer dodgy sovereigns there are to guarantee by then, the better both Merkel and her bankers will feel about it.

Meanwhile, Olli Rehn, the EU economics commissioner, repeated last night that “the other conditions needed to be fulfilled. They include identifying €325 million of extra budget cuts this year, and getting clear assurances from Athens legislators before they embark on the campaign for the next election.”

Quotes like that tend to suggest, I would argue, that if something is being planned here, then Brussels is fully informed.

Stay tuned. If any usual Slog sources I haven’t reached (or informative others!) can shed further light, please try me at the usual number – or email me at