Germany Revealed

In yesterday's article, The Greek Drama Hits An All Time Crescendo, I mentioned that Germany wants a new "Budget Commissioner" enshrined in the Greek constitution, effectively handing over Greek sovereignty to some shadowy EU figurehead that I described as, "... a figure head who is clearly an agent of Germany."


Although these requests or rather ultimatums have been under the guise of the Troika, clearly today the originator of the ideas has been unveiled and you can guess who is behind it all. German Economic Minister, Philipp Roesler, was quoted today in Germany's BILD and reported by Reuters as having said,


 Greece must surrender control of its budget policy to outside institutions if it cannot implement reforms attached to euro zone rescue measures.
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Philipp Roesler became the first German cabinet member to openly endorse a proposal for Greece to surrender budget control after Reuters quoted a European source on Friday as saying Berlin wants Athens to give up budget control.

"We need more leadership and monitoring when it comes to implementing the reform course," Roesler, also vice chancellor, told Bild newspaper, according to an advance of an interview to be published on Monday.

"If the Greeks aren't able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad, for example through the EU," added Roesler, chairman of the Free Democrats (FDP) who share power with Chancellor Angela Merkel.

The Financial Times reported on Saturday that it had obtained a copy of the proposal showing Germany wants a new euro zone "budget commissioner" to have the power to veto budget decisions taken by the Greek government if they are not in line with targets set by international lenders.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the document said.

For a period of time? Then why would there be a need to put a temporary measure in to the Greek constitution?

At the end of my article yesterday, I finished with the thoughts below, clearly in making this seemingly conspiracy theory like statement, I myself suffered from a lack of imagination...

"This situation is very fluid and the consequences for the European continent are politically the most sensitive since WW2. What for example happens when Ireland, Spain , Italy and certainly next, Portugal are bribed in to accepting similar agreements? Merkel's CDU have indeed been busy little bees."

However from the same Reuters article, it goes on....

"A government source in Berlin said Germany's proposal was aimed not just at Greece but also at other struggling euro zone members that receive aid and are unable to make good on their obligations."

Since Portugal is already in need of a second bailout, it should only be a matter of days before we here the initial details of Portugal being bribed with the same transfer of national sovereignty, again enshrined in their constitution.

Since yesterday when Greece formerly declined the offer, now uncovered as a plot hatched from Germany itself and not the Troika, although at this point one could hardly distinguish between the two, the Germans have again gone on the propaganda offensive.

As Greek Finance Minister  Evangelos Venizelos astutely said on Sunday to reiterate the Greek position, 

"Anyone who puts a nation before the dilemma of 'economic assistance or national dignity' ignores some key historical lessons,"

Germany has started a propaganda campaign, first as of today revising the actual amount Greece needs from the agreed $130 bn Euros in October to their new revised figure of $145 bn Euros today through an article in Der Spiegel. The debt talks are all of the sudden a moot point, the ratification of the $130 bn Euro tranche which was originally dependent on the outcome of the debt talks, has now become dependent on Greece giving up sovereignty (how quickly the picture has shifted since the initial rumors this Friday!)  As the clock ticks for Greece's next debt servicing in March which is impossible without the aide and will send Greece in to default, which as of now looks to be another moot point, Germany has for some reason (one day after Greece declined the German offer/black mail), all of the sudden lifted the bar of how much Greece needs to remain solvent. While I could speculate as to why this is coming out now, I think I lack the imagination to understand the German end game's tactics, I just note that it's strange for Germany to say Greece needs more after clear signs that NONE is coming.

Meanwhile, the politically unpopular bailouts in Germany, which have cost Merkel's CDU party in regional elections, is taking on a new tone from Party insiders and affiliated parties that share power with the CDU.

Here's unfortunately a Google Translation of the Spiegel article as I could not find it in English (I made some modifications to make it more clear)

The situation in Athens is more dramatic: the EU wants to take control of Greece's budget, the rescue package for the ailing state amounts to SPIEGEL informationon 145 instead of 130 billion euros. In Berlin, broad resistance formed to further aid.

 It's like a bottomless pit: the planned emergency measures for Greece are not enough to lead the country out of crisis. According to the troika of the EU Commission, European Central Bank and the International Monetary Fund, the country still needs one additional 15 billion euros.  billion euros,  decided in late October last year.

And the VERY sudden shift in tactics from the debt talks to Friday's developments...

 "We do not believe that you can collect the missing money solely with the private creditors,"  says the Troika.

 "Our attitude has not changed," CSU head Horst Seehofer said in SPIEGEL. "For reform standstill, there can be no more money." The CSU rejects new aid for Greece over the programs adopted, Seehofer said. "If the Greeks do not implement the reform programs, they can get no further assistance."

Also FDP parliamentary leader Rainer Bruederle calls for a relentless attitude towards Athens. "Solidarity is a two way street, so far as the European Community must stand firm and demand the necessary structural reforms," ​​he says. "Only when the Greeks also provide evidence that they are serious, can we help the European Community."

"The Greeks do not lack the political will, but the economic power"

The first coalition MPs have already announced that they plan to vote against a new Greece package. The Bavarian FDP member Erwin Lotter, who has previously approved all the euro rescue packages would not do the same in the case of Greece. "I thought, the Greeks took their time," he says. "Now I am assuming that there is a bankruptcy, the problems cannot be solved with more money."

The CDU politician Wolfgang Bosbach Interior announced that he will not vote for new tools Greece. "The Greeks do not lack the political will, but the economic strength to get back on its feet."

"All Greek parties must finally show the absolute will to change anything fundamentally." The deputy chairman of FDP Toncar Florian said.

Based on the previous, disappointing experiences Greece must accept "for a certain period" sovereignty over its budget to the EU. According to "Financial Times" which has seen the plan, adds that Athens is required by law to use state revenues to pay down debt first and foremost.

The government in Athens according to information officially know nothing ofthe plan.

Interestingly, while Greece has been focused on resolving Private Sector Involvement, seen by the Greek government as the pre-requisite to the next $130 bn tranche of aide, they knew nothing of the 'Troika's" plan for Greece to cede sovereignty. Interestingly, although the IMF headed by Christine Lagarde is part of the so called , 'Troika" plan, as early as late last week she was making statements that the ECB should take part in the debt restructuring, something the German based ECB as well as Germany has been vehemently opposed to. The fact that Lagarde had been focused on resolving the debt restructuring and protecting the long held concept of equal and fair bondholder treatment and protections, seems to show that the IMF may not have had any hint of what Germany was up to, as mentioned earlier, this has all developed with rumors on Friday.

Now German politician's are seemingly saying that they are resigned to the fact that Greece cannot be saved no matter how much aide is thrown its way. 

With a Greek default, there will be huge losses among many banks in the EU and across the world. If the debt restructuring is given up as it no longer is the path to the next tranche of aid, that leaves the ECB massively exposed. Other then putting other nations such as Portugal, Ireland, Spain and Italy on notice, I personally do not understand what all of these sudden shifts are about.

One thing is certain, and that is the environment in the EU has just become VERY uncertain, something the market hates. Bond holders have no idea where they will stand in a likely Greek default. Hedge funds and banks as well as other financial institutions have no way of calculating what hedges need to be in place, several months ago they were trying to figure out what a return to the Greek Drachma would mean and where it would trade. 

I would dare to say the IMF itself is unclear on developments. As George Soros said post the Davos summit, "Instead of the IMF, Germany is acting as the task master imposing  tough fiscal discipline and this will generate both political and economic tensions that would destroy the European Union".

Merkel made statements hinting that Germany was leading the Euro zone and cannot make promises that clearly cannot be fulfilled. 

For Lagarde's part, she seemed disconnected from recent German plans and instead focused on EU solidarity in building a firewall to limit contagion, she went on to speak about growth and how it needs to be through tailor made competitiveness for each country. She happens to be the only one I have any respect for and seems clearly like she is out of the German plan loop, but what else is new in the EU, since the start one hand has not known what the other was doing. You can say there has been a massive breakdown of communication which has led to massive distrust.

Tiny-Turbo-Tax challenged Timmy G. talked about a firewall, but with clear undertones of the theme he has been pushing since day 1, ECB monetization and an American style QE, which has made T.G. an unwelcome guest in previous Euro summits.

Nouriel Roubini called the EU, "A slow motion train wreck and not only in Greece", also that the Euro-zone will loose several members including Greece and Portugal.

Oddly, Mexican president, Felipe Calderon sums it all up nicely (being aware that the US is not immune from EU contagion as JPM's  Jamie Dimon said last week on CNBS (CNBC), "we have a timebomb the bomb is in Europe and we are working together to deactivate it before it explodes over all of us."

This should be a very interesting week, not only because of the EU situation, but because of the thus far reported S&P earnings as well as many technical indications.