German Finance Minister Prepares for Possible Greek Bankruptcy – Spiegel

These are the headlines at Spiegel Online, which should hit the markets like a ton of bricks offers on Monday. Looks like Spiegel posted the teaser to the full story to be released on Monday. Not a great way to restore market confidence, in our opinion. Here’s how the post ends: Read the full story on Monday on SPIEGEL ONLINE International.

And here’s how it begins,

With doubts growing about Greece’s ability to implement important savings measures and reforms, there are concerns that insolvency may be inevitable. In Germany, officials in Wolfgang Schäuble’s Finance Ministry are exploring what Athens’ financial collapse would mean for the euro zone

German Finance Minister Wolfgang Schäuble, who is reportedly doubtful that the country can be saved from bankruptcy, is preparing for the possibility of Greek insolvency. Officials in his ministry are currently reviewing scenarios for handling such a situation, exploring what it might mean for the rest of the euro zone. Under the first scenario for a Greek bankruptcy, the country would remain in the euro zone. Under the other, Athens would abandon the common currency and reintroduce the drachma.

And this,

One of these key instruments would be credit lines provided to countries like Spain or Italy if investors stop lending them money after a Greek bankruptcy. If banks were forced to write off the billions in Greek government bonds on their books, they could become reliant on billions in rescue fund aid in numerous euro-zone countries. Both developments are to be expected in a Greek insolvency, regardless of whether the country exits the euro or not.

Volker Bouffier, the governor of the state of Hesse, which is home to Germany’s financial capital Frankfurt, is a member of Chancellor Angela Merkel’s conservative Christian Democratic Union (CDU) party, as is Schäuble. Bouffier is now urging that the possibility for countries to leave the euro zone be created quickly. Current European Union treaties provide no provisions for a country to abandon the currency.

Call us paranoid but we were perplexed reading this in the G7 comminque,

Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets.

Do or are the banks, and which ones, for that matter, going to need to CenBank liquidity? Certainly not U.S. banks who are sitting on a mountain of excess reserves. Is the G7 anticipating or seeing a liquidity crunch in Europe? Maybe that is why gold is flopping around like a fish out of water.

Is Greece so far out of compliance with its IMF program that there’s no hope? Or is this just hardball negotiating tactics to give them one last chance before Germany pulls the plug? We have no freaking idea and just trying to make decisions with imperfect information. We’re getting whipped around by the tape bombs coming out of Euroland just as much as anyone else.

Nevertheless, Zero Hedge cites this Dow Jones story, IMF Likely To Re-Activate $580B Resource Pool Amid Europe Crisis-Sources, which states,

The International Monetary Fund will likely re-activate a $580 billion resource pool in coming weeks to ensure it has funds to help cover Europe’s worsening sovereign-debt crisis, according to several people close to the matter.

The IMF activated the so-called New Arrangements to Borrow in April of this year for a six-month period. The IMF’s board, which met informally on the issue late Friday afternoon, would have to approve re-activation of the resource pool if the fund wants to tap it beyond September.

“A large majority of the board members are in favor of re-activating the NAB,” as a precautionary measure, one of the people said. The board is scheduled to formally approve activation next Friday, the person said.

David Lipton, first deputy managing director at the IMF, said recently in a private meeting that keeping the NAB available may be necessary in coming months given Europe’s debt meltdown, people familiar with the matter said. The crisis is entering a dangerous new phase as the risk of Greece defaulting rises and Italy and Spain’s sovereign debt has come under attack.

And we note this from Reuters quoting French FinMin Alain Juppe,

Greece has made some mistakes. They have to correct these mistakes. They also have to honor the commitments that they have made.

Enough to make you think something big is about to break as it appears the powers that be are assembling a huge armada of liquidity. Or maybe we’re just paranoid. Stay tuned.

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