Soros bets against Euro

[Jan Klimkowski]

Germany is preparing a plan to attempt to save its banks when Greece defaults.

Greek default may occur as early as this weekend.

See, for example, Market Ticker and Zero Hedge.

Excerpts:

To add to the "liar liar pants on fire" calls Germany is now reported to be working a plan to recapitalize their banks if Greece defaults. This in turn means three things:

A Greek default is considered credible by Germany and they are taking official actions related to that possibility. So much for the denials.

German banks (and presumably French banks and all the other big banks too) are insolvent as they are carrying these bonds at well above their actual value in the marketplace. If the bonds were carried at the claimed "loss" values, which is quoted as 50%, then there would be no need to recapitalize them would there? This is an official statement of proof that the banks are lying about asset values and are in fact insolvent.

Remember that we were just told days ago that these banks were fine and needed no capital and in fact calls for more capital by the IMF were officially refused. The same claim has been made about our banks. You were just told officially by Germany that their claim of adequate capital just days ago was a lie as they are now planning to recapitalize the banks. Do you believe our banks are not similarly exposed and also insolvent? YOU'RE BETTING YOUR FUTURE ON THE BELIEF THAT THEY ARE, SO THIS QUESTION IS QUITE GERMANE AND TIMELY: ARE YOU SURE YOU'RE NOT BEING LIED TO EXACTLY AS WE WERE ABOUT GERMAN BANKS?

Coincident with this hitting the wires there was a massive flow of money into the Japanese Yen - and out of the Euro. A monstrous safety trade - people fleeing the European common currency for what they perceive as a "safe haven." At the same time our markets are down 300 DOW points, the S&P is down 2.5% on the day and more than forty points off the early-morning top -- and there's no sign that things are stabilizing at all.

Literally seconds after the Greek finance ministry announce that any rumors of a Greek default over the weekend are absolute rubbish (we wonder who would admit such rumors?), we get the following from Bloomberg: "Chancellor Angela Merkel's government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said. The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece's bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government's bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said. The existence of a "Plan B" underscores German concerns that Greece's failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country's progress." Looks like at least one very "naive" government is not buying the latest batch of lies from Greece.

Then, there's this:

Markets plunge following resignation of German ECB official Jürgen Stark

Decision to quit fuels speculation that central bank policymakers are split amid fears that Greece could default

Phillip Inman and Helena Smith in Athens guardian.co.uk, Friday 9 September 2011 20.11 BST


The dramatic resignation of a senior European central banker sent stock markets plunging, amid fears that Greece is on the brink of default and the fragile consensus in Berlin over support for the ailing Italian and Spanish economies was close to disintegration.

Bank stocks, down more than 5% in some cases, were the worst affected as the Dow Jones dropped almost 3% to below 11,000. European exchanges joined the panic with the FTSE falling more than 100 points to 5230. Speculation that several French and German banks would soon embark on massive capital raising schemes to offset write-offs on holdings of Greek debt, added to the febrile atmosphere.

Greece issued a statement to say it remained solvent and would not need to seek funds beyond the sums already agreed with the EU and International Monetary Fund. Deputy prime minister Evangelos Venizelos said: "It is not the first time we see an organised wave of "rumours" about an upcoming Greek default. This is a game of a very bad taste."

But the statement from Athens failed to rally markets, which have remained wary of assurances by EU leaders that they will do everything necessary to keep peripheral eurozone countries afloat.

Nick Bennenbroek, head of currency strategy at Wells Fargo Bank, said investors globally were concerned at the potential collapse of a European sovereign. "The European troubles are permeating across global financial markets"

The decision to quit by Jürgen Stark, a member of the European Central Bank's (ECB) rate-setting governing council, was quickly seen as a signal that policymakers remained at loggerheads.

Stark, a German hardliner and former member of the Bundesbank board, has lobbied for the ECB to impose stricter austerity measures on Greece and Portugal and to reject using its funds to purchase Italian and Spanish bonds until Rome and Madrid have made further efforts to reduce their debts and institute reforms.

At a press conference on Thursday ECB boss Jean-Claude Trichet appeared visibly rattled by questioning from German journalists who asked if the eurozone's largest economy should quit rather than keep subsidising indebted countries.

Trichet said, in a clear warning to colleagues, including Stark, that Germany had prospered from the euro and should maintain its commitment during the worst crisis since the second world war.

However, the clear disagreements at the most senior levels of eurozone policymaking have fuelled concerns that the euro is now beyond rescue and will fall apart.

Stark has been a consistent critic of the ECB's programme of purchasing government bonds of debt-ridden European nations in the markets. He has said eurobonds, which many economists believe are the only way to save the euro, would create false incentives for indebted countries. The cost of borrowing for the German government has increased as investors price in the risk of it absorbing the debts of all eurozone members through the creation of eurobonds.

Greek borrowing rates have hit stratospheric highs this week; 62% for two-year money, while a three-year bond maturing next year hit 129%.

But officials in Athens hinted that the deadline for private-sector involvement in a second €109bn bailout programme had finally been met. The programme includes private financial groups agreeing to a €135bn debt-swap scheme.

The debt-swap is an integral part of the deal agreed by EU leaders at an emergency summit in July. However, many economists say the swap is not big enough and last night it was understood that as few as 70% of bondholders would agree to take part. The socialist government had said previously it would not go ahead with the deal if participation fell below 90 percent.

EU Commissioner Olli Rehn, who is responsible for economic and monetary affairs, has argued the opposite, claiming the introduction of euro securities would "strengthen fiscal discipline and increase stability in the euro area through markets".

Some analysts said Stark's departure signals a victory for Angela Merkel and French prime minister Nicolas Sarkozy, who have lent on the ECB to relax its rules on lending to Greece, Italy and Spain.

The arrival of Italian central bank boss Mario Draghi as head of the ECB is also expected to cement control over the ECB by a more doveish majority keen to preserve the current membership of the euro.