Germany Readies Surrender Over Greece

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Bloomberg   Monday September 12, 2011, 5:14 am EDT

After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, German Chancellor Angela Merkel is laying the groundwork for what markets say is almost a sure thing: a Greek default.

“It feels like Germany is preparing itself for a debt default,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in an interview. “Fatigue is setting in. Germany could be a first mover or other countries could be preparing too.”

Officials in Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. The move capped a week of escalating German threats that Greece won’t get the money unless it meets fiscal targets, and as investors raised bets on a default.
Slump in Euro

European bank credit risk has surged to an all-time high, according to the Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers, and the euro fell last week by the most against the dollar in a year. Investors have doubts about whether Greece will implement austerity moves fast enough to get a sixth payment from last year’s 110 billion-euro ($150 billion) bailout.

The euro was down 0.6 percent today against the dollar at $1.3601, the weakest level since February.

The Greek government’s top priority is “to save the country from bankruptcy,” Prime Minister George Papandreou said in a Sept. 10 speech in the northern Greek city of Thessaloniki. “We will remain in the euro” and this “means difficult decisions,” he said.
Opposing Aid

German lawmakers, who are scheduled to vote Sept. 29 on a second Greek aid package and revamped rescue fund, stepped up their criticism of Greece after an international mission to Athens suspended its report on the country’s progress two weeks ago.

“There can be no doubt” that Greece must fulfill the terms of aid to receive it, German Finance Minister Wolfgang Schaeuble said in Marseille. “Everybody must stand by the agreements.”

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