Posted on 07/12/2010 7:43:50 PM PDT by mainsail that
Fearing a lasting burden on taxpayers, the German government is preparing a set of insolvency rules for countries in the euro zone. It would require private investors to bear some of the financial burden and force the affected countries to give up some sovereignty. The plan is guaranteed to meet with resistance.
As a physicist and an avowed admirer of the Swabian housewife, German Chancellor Angela Merkel, leader of the center-right Christian Democrats (CDU), is seeking to establish binding rules in the midst of the chaos of financial and monetary crises. Her desire for order was reinforced recently when the prospect of Greece collapsing under a mountain of debt triggered turmoil in the European Monetary Union.
The first national bankruptcy on European soil in decades was only prevented because the remaining countries in the euro zone came to the aid of their faltering fellow member with billions in loans and loan guarantees. The chancellor, determined not to allow the Greek debacle to be repeated elsewhere, proposed the establishment of a procedure to ensure "orderly national bankruptcies." The German chancellor hoped that the plan would create "an important incentive for the euro-zone members to keep their budgets under control."
Finance Minister Wolfgang Schäuble, in complete agreement with Merkel, said: "We have to think about how, in an extreme situation, member states could become insolvent in an orderly fashion without threatening the euro zone as a whole."
(Excerpt) Read more at spiegel.de ...
In other words, it is quite possible that Greece will not fulfill the conditions and thus will receive no aid from the European fund. This could lead to a consequence that European leaders have been trying to prevent at all costs: a total national bankruptcy. And, if the reform package has not been implemented by then, it could end up being anything but an orderly process."
They act all surprised when the "Eat the Rich" crowd they created looks at them hungrily!
The Fourth Reich.
“and force the affected countries to give up some sovereignty.”
In the words of Winston Churchill: ‘The Hun is always either at your throat or at your feet’
The plan is good in concept but she will play hell getting anywhere with it. Maybe after Greece falls, the rest will come to their senses. Of course that may be too late.
“The Fourth Reich.”
Cutting someone off the free German cheese?
“Maybe after Greece falls, the rest will come to their senses. Of course that may be too late.”
IMO, Germany wanted to let Greece fall for the above reason, strike fear into the rest of freeloaders, but Ze French forced Germany to postpone the inevitable.
Greece will need to lose about $200-250 Billion worth of debt to be “normal.” as their debt is now at some $400 Billion and will reach $500 Billion soon. Assuming (a big assumption) that the Spanish, and Italians don’t want their cut of free money, Germans will have to pay about of 25% of that $200-$250 Billion. Fat chance, especially since small countries and deeply indebted ones like Italy, Ireland, Slovakia etc will have to give Greece billions for nothing—at the same time they cut services and raise taxes for their own people.
Pitchfork time!
“One should simply have asked a Swabian housewife,” Mrs. Merkel said during an address to fellow Christian Democrats in December 2008 in the southwest German region of Swabia, hub of the Protestant work ethic. “She would have told us her worldly wisdom: in the long run, you can’t live beyond your means.” “
I’m going to have to find the German version of this:
“We have to think about how, in an extreme situation, member states could become insolvent in an orderly fashion without threatening the euro zone as a whole.”
Because it makes absolutely no sense, and if this is really what she said, she’s just lost touch with reality.
I think it has to do with controlled vs uncontrolled bankruptcy.
Controlled - start talking with lenders months before and agree for them to take a haircut etc.
Uncontrolled - Ala Argentina, I can’t pay you and maybe 10 years later we can agree.
Thank you..
Ah, I see where you’re going here. Quite true, yes.
Given the size and scope of the US debt problem, I think trying to claim that we could control it would kill people with fits of hysterical laugher, leading to asphyxia. We’re riding *the* world monster of debt problems, and I think we’re rapidly approaching a point where we no longer control it — it will control us.
The problems in the EU are still small enough (on individual sovereign basis) that they could be dealt with in the way you say (ie, start talking about the issue and negotiating haircuts before the drop-dead date), as long as they don’t fall over like dominoes or have heavy derivative amplification.
Germany sees the US, and where we’re going, and quite logically says “We don’t want to go there.” Hence their resistance to being the soft touch to take on liabilities to bail everyone else out without strict consequences that change behavior.
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