Germany warns of 'Lehman' crisis if Greece defaults … German finance minister Wolfgang Schauble (left) has pleaded with his country's citizens to back a joint EU-IMF bail out for Greece worth up to €45bn (£40bn), warning that failure to act risks a financial meltdown. We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers," he told Der Spiegel. "Greece's debts are all in euros, but it isn't clear who holds how much of those debts. The consequences of a national bankruptcy would be incalculable. Greece is just as systemically important as a major bank," he said. Mr Schauble said Berlin had scant room for manoeuvre over the bail-out given a likely court challenge by German professors but promised to "abide by the constitution". German backing failed to stop spreads on 10-year Greek bonds surging to 454 basis points over German Bunds, the highest since the launch of the euro. "Investors are not going to believe in a rescue deal until every 'i' it dotted and every 't' is crossed, " said Marc Ostwald from Monument Securities. "But there is also a deeper fear that Greece could bring down the whole pack of cards." – UK Telegraph
Dominant Social Theme: Euroland must summon the iron will to deal with Greece!
Free-Market Analysis: The dominant social theme as regards the European Union seems simple enough: "Things are getting better" or, perhaps, "the market is calm and optimistic about Greece." But why is the elite orchestrating these sorts of sentiments – followed by wild gyrations in European bond markets, especially of Greek debt – when they likely won't do any good?
We figure they're running off an old playbook. In the 20th century, when a promotion was launched, the mainstream media reported on it like an echo chamber, each major newspaper and television station reporting the same thing in different ways, until eventually it sunk in. People began to believe it. Then all that was necessary to do was to manipulate the market itself (any given market) and voila – an outcome that was both predictable and desirable from the elite's point of view.
But the power elite doesn't have that sort of power in the 21st century, thanks to the widespread debunking by the Internet. It's not just the sour economy, for there have been sour economies before. It's the information that is being spread by electronic communications. It's a kind of meme itself – or anti-meme. People are waking up, as if from a bad dream.
Many elite promotions are unraveling or at least becoming less convincing. Peak oil, global warming, even regulatory democracy itself – all are being questioned and all are being found wanting. In the US, libertarian congressman Ron Paul (R-Tex) is running neck-and-neck with the US president, Barack Obama in terms of approval ratings. And according to Pew Research, only 22 percent of Americans trust the government "always or most of the time."
We would argue that the EU is heading toward the same fate. Every week, every day, we hear from some top EU bureaucrat or banker that the Greece crisis is at an end and that Europe has been stabilized. These pronouncements are dutifully related by the mainstream media with the seriousness reserved for major statements. There are big headlines and sonorous sounding declaratory quotes. And the next day the bond market gyrates and the proclamations reverse themselves. Greece is once more troubled; the EU is once more on the brink; Germany is headed out the door; the PIGS are generally stumbling toward ruination.
Germany is key because Germany, almost alone in Europe, remains sizably solvent. But as we can see from the above article excerpt, the German constitution is fairly clear about what can and cannot be done as regards the EU. Germany CANNOT directly bail out Greece or other profligate euro-states. This makes Germany's leaders very uncomfortable and is driving the Eurocrats mad.
The majority of Germans are against a Greek bailout, anyway, even an indirect one. There is already at least one court challenge aimed at the IMF/EU bailout. The Germans are aware that after Greece come the rest of the PIGS: Portugal, Spain, et al. – equally insolvent. Is Germany going to keep on agreeing to EU bailouts? We can only see the anger rising. Not only that, what happens when half of Europe is up in arms over "austerity measures" being imposed across-the-board on Southern Europe. Are the ever-fractious tribes of these countries going to acquiesce to a radically diminished quality of life? We can't see it.
The hope (among the powers-that-be) was that the EU, when it got into trouble, would be able to work its way out by assuming more political authority to go along with its economic mandate. But has this turned out to be a practical possibility? Here's some more from the Telegraph article excerpted above:
An administrator of China's foreign exchange fund SAFE – the world's top investor – was quoted by Asia's newswire IGM-FX warning that Greece may set off a chain reaction in the eurozone, and that some states with big debts may default. "China is becoming concerned about Europe," said Simon Derrick, currency chief at the Bank of New York Mellon. "Greece is going to struggle to find anybody to buy its debt. There is no road-show in Asia, and it may pull out of its show in the US."
IMF data shows that China and emerging markets have accumulated $4.8 trillion (£3.1bn) in foreign reserves. Roughly $1.7 trillion is invested in eurozone bonds. These rising powers will decide how Europe's drama unfolds. Greece plans to raise €1.5bn in short-term notes on Tuesday . A crunch looms in mid-May with the refinancing of €8.5bn in bonds.
Investors have been unsettled by growing popular hostility in Greece to austerity measures. The Adedy union has called a fresh strike on Thursday. Yiannis Panagopoulos, head of the GSEE labour group, said EU demands for a pensions shake-up are unacceptable, threatening a "social storm" if the proposals go to parliament. Premier George Papandreou has yet to activate the EU rescue, raising EU suspicions that he is playing poker to extract better terms. Nout Wellink, Holland's member at the European Central Bank, said Greece needs to show greater "urgency."
We note that this last paragraph does not seem to presage labor peace. Nor does it seem to indicate, as we have read in other articles, that the Greeks are falling in line with the idea that they need to support a socialist government that is negotiating radical spending cuts, diminished pensions, and much higher taxes. In fact, as has been pointed out elsewhere, none of the money promised from the EU or IMF is going to end up in Greek pockets. It will all go to banks and other institutional lenders to pay down Greek debt. And despite these payments, the Greeks will still suffer.
Given the intractable nature of these problems, we have read that the EU may throw up its collective hands and forget about trying to bail out the PIGS, which may be, anyway, a nearly impossible proposition. Portugal is teetering on the brink now, and Spain is likely to be next. The better idea, perhaps, would be for the EU to nationalize Europe's big banks, which are, across-the-board, apparently, in hock to an increasingly bankrupt Southern Europe.
But is this practical? Can the EU simply step in and bail out, and then effectively nationalize (is that the right word) a broad swath of big banks? As we're written before, we don't know where all this will end up. But the EU, an anti-democratic, thuggish and profligate regime, deserves everything it's getting. The EU has been built on lies, as those behind it never admitted the final destination was a United States of Europe. Now, thanks to the Internet and the economic crisis, such lies are unraveling and patience is running out. We've watched the solutions being proposed one after the other, and not a one has stuck yet. This combination IMF and EU bailout doesn't seem to be calming the situation either.
The Germans are no more apt, in aggregate, to support Southern Europe's lackadaisical finances than they were last week, or the month or year before. The IMF/EU approach to Greece could end up being a one-time patch. The longer the larger situation remains unresolved, the higher the probability that the EU goes bust, or at least ends up with fewer members. Maybe the euro goes away. Something is probably going to give. That's what the German leaders are seeing. That's the reason for the desperation.
