Friday, May 25, 2012


The Euro-leaders all went home yesterday having accomplished abosolutely zero...or did they?  That would have been my iniial conclusion but then I had a long talk with truly one of the wise men of this business who got me thinking.  We focused on the Citibank report that predicted Greece would leave the Eurozone on the first day of next year, return to the Drachma and watch it devalue by 60%  I expressed my view that it would happen much sooner than that.

"Don't be so sure," said he.  "I think they are going to try to hold it together ."

Now when this guy says something I listen because he's been right way more than wrong in the 30 years I have know him, so I got to thinking.  It's pretty clear where the main players are in this thing.  The Germans, they with the Gold and the portrayers of the Golden Rule demand austerity; the French wing...if there is such a thing...demand growth.    The gulf has been portrayed as too wide to bridge.
The Greek elections may settle it once and for all with an overwhelming victory on the part of the left (about which I expressed my view supporting that result) but it is indeed true that the Greeks don't wish to leave Europe...they just don't like playing by Europe's rules...a non-definitive result in three weeks may in the mind of some create an opportunity that right now certainly doesn't exist.

Whomsoever has the best chance of forming a new government would almost certainly approach the Troika for an indication of whether there is any "give" in the straightjacket in which Greece finds itself, and the belief is in some circles that they may find an attentive ear.  Now it just might be that the Euro are fed up and really want Greece out but my old friend doesn't think so.  He thinks there is a real possibility that the Greeks may get a stay of execution, be given some money to stave off default and reopen discussions after forming a government as to what the future might hold.  Why not, says he.  It's not like it's "good money after bad; it's simply going to round-trip back to the lenders to pay off maturing obligations.  No new exposure.  While not compelling, it's a sound argument.    

This would provide a breathing period for the rest of the gang allowing for a forthright airing of Angie and Frankie's positions.  Ms. Merkle is not without problems at home as the We Need Growth Chorus is rapitly heading to the top of the charts in Germany.  However, she is a long way away from becoming Europe's fairy God-Banker, in Germany any open ended promise to fund Europe is a one way ticket to a job outside of politics.  But says my friend, suppose she puts on the table the Grand Bargain?  Suppose she agrees to something like a Eurobond in exchange for fiscal union?  Suppose she's prepared to negotiate on the structural differences throughout Euroland?  Suppose in exchange for Germany's checkbook she can get Brussels to adopt German work rules (remember, the Germans retire at 70, the French at 62--going back to 60, the Italians at 55, the Spanish at 50 and the Greeks never because they don't work) or reach a compromise on the same?     Gross Deutschland--and without firing a shot?   As the Little Guy said, "L'Audace, tres L'Audace."  In his day everyone spoke French, even Germans.  They've never gotten over it.

And so we shall see.  One problem, however.  Something like this needs time and they may not have it.  Oh Greece is no problem, but today Spain discovered the autonomous region of Catalonia just ran short of the ready and the bill for all the states suddenly turned out to be 36 billion Euros instead of 8 billion and counting.  The week started with liquidity concerns regarding Spanish banks and ended with good old Credit concerns about Spain.  The debt clock still runs.  Tick Toc.

Have a great weekend.   It's Memorial day here.  Bank holiday on Monday.  

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