Report: Germany is preparing for Greece’s exit from the euro zone

Two months ago I wrote that Germany is preparing for Greek bankruptcy based on information from German Magazine Der Spiegel. In that article, I mentioned the following:

There are two schools of thought about a Greek default concerning Spain and Italy. Portugal and Ireland are separate less systemic issues. In the one school, contagion increases and Spain and Italy come under pressure. The Germans are making preparations for this eventuality. In the second school of thought, a Greek default lessens pressure on Spain and Italy as Greece is seen as “a special case”.

I think the first school of thought is winning converts given events in the two months since I wrote this. Italy is perilously close to the edge and France, Belgium, and Austria have all been pulled in tow. Yesterday, Slovenia popped up out of nowhere too. It is now paying 7% for ten-year money too.

My warning since July:

All of the euro zone countries face liquidity constraints and all of them will eventually succumb to the rolling wave of yield spikes one by one until we get a systemic solution: full monetisation and union or break up.

Now, the new story is that the Germans are preparing for a euro zone exit by Greece (hat tip Kevin). Again the source is Spiegel:

The German government has been simulating a range of scenarios to prepare for a possible exit of Greece from the euro zone. Under a worst-worst-case scenario, the country could descend into a vicious circle of misery that could last decades.

Clearly, if you are in the first camp from above, Greece’s exit won’t be enough because the euro crisis is not about Greece, it’s about currency sovereignty.

This Spiegel story sounds like hearsay to me, but they got it right last time. I wouldn’t be telling you about it if I didn’t believe it was credible.

Follow the full story at the link below.

Source: Berlin Prepares for Possible Greek Exit from Euro Zone, Spiegel


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.