http://www.zerohedge.com/news/german-press-greek-exit-done-deal

German Press: "The Greek Exit Is A Done Deal"

Submitted by Tyler Durden on 05/23/2012 21:05 -0400

Did France, Italy and Greece think they are the only ones who can float strawmen in the media? No. Once again, Germany shows us how it is done. From Tomorrow's edition of Deutsche Wirtschafts Nachricthen: "The Greece-exit is a done deal: According to the German economic news from financial circles EU and the ECB have abandoned the motherland of democracy as a euro member. The reason is, interestingly, not in the upcoming elections - these are basically become irrelevant. The EU has finally realized that the Greeks have not met any agreements and will not continue not to meet them. A banker: "We helped with the Troika. The help of the Troika was tied to conditions. Greece has fulfilled none of the conditions, and has been for months now." So more posturing? Or is Germany truly just so sick and tired of bailing out not just Greece (which pockets between 0% and 20% of any actual bailout cash), and indirectly French banks which as of this moment are the biggest pass thru beneficiaries, and of course the ECB with its tens of billions in old par GGB holdings, that this article is, gasp, founded in reality? Is Europe approaching its own Lehman moment when everyone says "just screw it", and let the dice fall where they may? Many said Lehman could never be allowed to fail. They were wrong. Just as many are saying that Europe will never let Greece leave as the costs to the continent are just too great. Well, judging by tonight's epic fiasco of a Euro-summit, the last thing we would attribute to Europe's leaders is clear and rational thought.

Full article, google translated:

The loud sounds of the left-politician Tsipras were just the straw that has brought the camel's back. In the EU, the ECB and the IMF have been completed with the issue.Greece must get out of the euro, it is generally agreed across all sectors. The information contained in the former central banker and technocratic Prime Minister Lucas Papademos had delivered. He had enough time to convince the one hand, the full extent of the calamity, and also by the unwillingness of the parties to save money. Basically, his tenure was a fact-finding mission on behalf of the EU. His conclusion:Mission Impossible. About the consequences, there are different views: the central bankers do not want to pay more because they see that the whole is a bottomless pit. The politicians, led by Angela Merkel reluctant yet. As always there are the politicians advocate the status quo, because they fear nothing more than the unknown. And there are unknowns with a Euro exit any quantities.

It begins with the question: How does it work really practical? An outlet to see the EU treaties before any more than one eviction. For safety reasons, both the ECB and the Bundesbank formed crisis teams that are preparing now as the commanders on various contingencies. A small consolation is believed to have, because the debt incision was made, and therefore actually is a direct contamination of the banks as rather unlikely. Although this may not confirm officially Banker: The unofficial interpretation is that the risk of infection by the average debt "significantly reduced" was.

Most debts are now in the public sector - ie the ECB and the IMF. In the case of a state bankruptcy of Greece on the Target 2 system, the German Bundesbank would be taken immediately. Altogether, it is so appreciated, are the Greeks with 200 billion euros at the ECB and the IMF in debt. Therefore, all of which are currently very careful with scenarios: One does not want to be in the cards look. And as even the most amicable divorce in the end always haggled over the cost. Even the ECB and the IMF want to see their money again. They need the cooperation of the Greeks. A representative of the public sector: "When it comes to the discharge, the creditors will negotiate with the debtor. The creditors have no interest that the debtor is no longer on the legs. "

However, the debtor to cooperate with the creditors, some skirmishes will be fought. The Greeks would say, then we throw it out once - we do not pay but not our debt.

This game can not last for long. Since Greece can take no money in the capital markets, Greece must cooperate with the Troika. Without money, the country is very fast at the end: it can pay its civil servants no longer afford no energy, public life threatens to spiral out of control.

Right here wants to start the Troika: The next installment is due in June, there will be only when the Greeks come up with a fairly reasonable exit plan. Until then, the ECB can keep up with their financial instruments, the Greek banks so far over water, not everything falls apart.

At the same time it is hoped the troika that the ESM is surprising, because then enough money is available to prevent the contamination of other states. Because you can answer a question no one, like a of involved banker says: "We all know not whether it comes after the withdrawal of the Greeks to a domino effect or whether it really is the great liberation has been." There is always some require "discretionary action" of the ECB to keep the situation under control. In plain German: As some will have to be printed on money, so the crash can not go but even the whole euro zone in the air.

and.....

http://www.businessinsider.com/heres-what-happened-at-todays-big-eu-summit-2012-5

EU leaders met in Brussels today, with little hope that it would produce any tangible results.

Meanwhile, tensions between German Chancellor Angela Merkel and French President Francois Hollande seemed to continue unabated, a further sign that the Franco-German partnership seen under "Merkozy" (with former French President Nicholas Sarkozy had deteriorated.

Now all we have is Merde.

As analysts had predicted, eurobonds and deposit insurance for banks were discussed at the summit, but it does not appear that substantial progress has been made on either of these issues. Leaders reiterated support for Greece, yet framed the important Greek parliamentary elections next month as a referendum on the country's euro membership.

* * * *

It is also worth noting that European Central Bank President Mario Draghi took Merkel's side on eurobonds, describing them as an "end of process" scenario for fiscal integration. He also told reporters that leaders had not discussed giving the ESM a banking license that would allow the bailout fund to lend to troubled banks, nor had they considered any changes in the ECB's mandate.

and....

http://www.zerohedge.com/news/live-webcast-european-council-press-conference

Live Webcast Of European Council Press Conference

Submitted by Tyler Durden on 05/23/2012 19:24 -0400

Germany

Update: Conference over. Mentions of Deposit Guarantees? Zero. Is the market run by idiot algos? Yes, next question.

Wondering if Germany did indeed cede to demands for an international deposit guarantee system (of the Eurosystem's $11 trillion in deposits), or if it was all merely a bad dream concocted by several rumormongers who took advantage of stupid algo-matics to ramp stocks 1.5% on absolutely nothing? Then watch the below live press conference from the European Council, starring Gollum, which will make everything clear, and once again confirm why the Einhorn representation of Europe's only strategy is still alive and well.

and....

http://www.telegraph.co.uk/finance/debt-crisis-live/9283848/Debt-crisis-live.html

( items from the Telegraph liveblog of the Euro chat & chew tonite - as expected , absently nothing accomplished )

01.35 And here's what Christopher Hope made of it all:

Take home fact from the European Union summit? The EU leaders' meeting broke up at around 12.30pm, UK time, after spending just an hour - out of around six hours of talks - discussing the crisis in Greece.

Oh, and the EU leaders are still pushing the Financial Transactions Tax, despite real fears about the future of the eurozone. Speaking shortly afterwards, Mr Cameron disclosed that the other eurozone leaders tried again to push the case for a financial transaction tax.

Mr Cameron said it was a "good meeting" and there were some "innovative ideas" about boosting growth in Europe. But he added:

"Then there was some bad ideas too. The Financial Transactions Tax is a bad idea - it will put up the cost of people's insurance, put up the cost of people's pensions, it will cost many, many jobs. It will make Europe less competitive and I will fight it all the way."

01.25 So what to make of tonight's "preparing the ground" summit? Bruno Waterfield sums it up as a "vanity summit for Hollande":

Mr Hollande was able to come and say that he got a commitment to look at the eurobonds issue, credit lines for banks, FTT, etc, but the problem is that he also got all the usual suspects raising their objections, while a sense of doom on Greece overshadowed the whole affair.

One thing is new, six months after Britain's veto of a new EU treaty - the issue is back. After tonight's six hour dinner the eurozone is no closer to solving its problems and the EU's single currency looks no more secure.

00.59 Meanwhile, David Cameron has left the building. Before he departed, he said this:

Well, it was a good meeting in that there was complete agreement that dealing with deficits and getting growth are not alternatives, they go together, you need to do one in order to get the other.

There was also good agreement that we need to make Europe more competitive, we need to complete the single market, we need to do those structural reforms.

Then there were good innovative ideas that can help growth in Europe, but frankly there were some bad ideas too. A financial transactions tax is a bad idea, it will put up the cost of people's insurance, put up the cost of people's pensions, it would cost many many jobs, and it would make Europe less competitive and I'll fight it all the way.

00.52 Jean-Claude Juncker, the head of the Eurogroup, has denied that he asked countries to prepare contingency plans for a Greek exit, but suggests that many countries are thinking about it anyway. He said:

I did not ask the member states of the euro area to prepare national contingency plans, but of course we have to consider all kinds of events, but our working assumption is that Greece will stay as a member of the euro area.

It is our common political willingness to do everything possible in order to retain Greece as a member of the euro are.

00.45 Mr Hollande calls for more financial help for Greece. He says structural funds should be quickly mobilised.

He says that eurobonds would not be used to roll-over existing debt, but for new loans for those with high spreads such as Spain.

00.43 Mr Van Rompuy says that "several members touched on eurobonds, in different directions," but wants to make it clear that nobody asked for their immediate introduction, and eurobonds would only be part of a longer-term plan.

00.41 So, France still wants eurobonds. And surprise, surprise, Germany doesn't. Angela Merkel said:

I laid out our German position, that we need a much stronger economic cooperation in the euro area -- that we have huge difficulties, if we think about the fiscal pact, in terms of the treaty framework.

00.35 More from Mr Hollande, who says tonight’s summit took a long time because everyone wanted to have their say.

Mr Hollande says that he noted that a number of countries were hostile towards the idea of Eurobonds. He sees them as a way of helping countries get access to cheaper cash, but says Mrs Merkel does not consider Eurobonds to be an instrument of growth but has a long term integration perspective.

00.28 Meanwhile, Francois Hollande says that he wanted the idea of eurobonds to be the next step in terms of integration. He also reiterated the French attachment to a financial transactions tax (FTT), which he says can be used to fund growth.

00.27 Mr Van Rompuy says the meeting "prepared the ground for decisions in June". He also outlined the three main pillars of Europe's 2020 growth strategy:

1.) Mobilise EU policies to fully support growth 2.) Step up investment 3.) Strengthen job creation.

"We. Want. Greece. To. Remain in the euro area," he says slowly, "while accepting its commitments".

00.26 Mr Van Rompuy says the meeting was about "putting pressure, focusing minds and clearing the air."

00.20 Francois Hollande, Angela Merkel and Mr Van Rompuy are holding press conferences at the same time. We'll bring you updates from all three. The FT's Peter Spiegel has opted for the Van Rompuy presser:

http://hat4uk.wordpress.com/2012/05/23/euroblown-merkel-fears-greek-distractions-will-torpedo-currency-union/

EUROBLOWN: Merkel ‘fears Greek distractions will torpedo currency union’

Summit signposts: Hollande’s eurobond, and Greece’s banks.

Can Hollande offer what Merkel wants?

The poker game that is non-negotiable bailout terms v Greek exit threat continues, but most of the propaganda is now coming from Berlin-am-Brussels. A German source suggested last night that Merkel is adamant that Greece must not derail the dash to Fiscal Union. If Francois Hollande gets his way, however, the Greeks will not be required to call the EU’s bluff – or vice versa.

“It’s the Big One,” as arch unconscious double-entendre expert David Coleman was wont to remark. The EU summit that begins today is an important one for eurowatchers. Whether it will achieve much is another matter entirely. But either way, the session will be dominated by The Greek Question….something that is, allegedly, now getting very severely on the Fuhrerin’s nerves.

Some of you may have noticed that over the last week I’ve been edging out onto a limb regarding Greek exit from the euro. That’s to say, if one applies the Slog first principle of watching behaviour and ignoring rhetoric, all the signs suggest to me that Greece will stay in. The reason is simple: neither side wants it to leave the eurozone.

A few weeks back, there were clear signs of a change of heart among the Greek electorate; but on closer examination, it only ever went as far as the bailout terms in relation to ‘rebellion’: even Alexis Tsipras has had to accept that probably around three-quarters of the voters want to stay in the eurozone. In the latest opinion poll anecdotes I’ve received, there is evidence of voters now returning to New Democracy, with Syriza on the Left also doing well….and Evangelo Venomzealot’s PASOK holding steady. This suggests to me that, come June 18th, there will be a pro-bailout majority in the Parliament. (But don’t rule out Merkel and Schäuble doing something unutterably dumb in the meantime).

At the other end of the tug-of-war, there is a lot of blustery propaganda in the air, but again, actions speak louder than words.

Greece’s banking system is being propped up by an estimated €100 billion or so of emergency liquidity assistance (ELA) provided by the country’s central bank —but it is being approved secretly by the European Central Bank in Frankfurt. A careful look at last month’s ECB statements also shows that an unexpected €121 billion increase in the innocently titled heading “other claims on euro area credit institutions” just went flying out of the rapidly-emptying coffers. The total figure is closer to €140 billion….but most of it went to Athenian banks.

“Cutting off ELA would be the way to push Greece out of the eurozone — if that was wanted, or if Greece really wanted to leave. But I don’t think the ECB is going to take that decision,” said Laurent Fransolet, Barclays analyst. I think Monsieur Fransolet is right on the money – if the situation in Athens remains within Draghi control. (See more on this below)

Greece’s position has also been considerably strengthened by the election of Francois Hollande. Before that event, the diabolical duo in Berlin were merely outnumbered: now, they’re surrounded. This hasn’t stopped Der Spiegel (whose editorial position is now openly for kicking Greece out of the eurozone) from running the usual Finance Ministry plants – like this one from yesterday:

‘Despite official claims to the contrary, the governments of the euro zone are threatening to kick Greece out of the currency union. At a meeting of euro-zone finance ministers last Monday in Brussels, it was made clear to Greek Finance Minister Filippos Sachinidis just how serious the situation had become. “If we now held a secret vote about Greece staying in the euro zone,” Euro Group Chairman Jean-Claude Juncker warned his Greek colleague, “there would be an overwhelming majority against it.”

I do have a slight logic problem with Juncker’s ability to hold a secret ballot and know the result in advance, but spend too much time working for the Commission, and this is the sort of brain damage that occurs. Anyway, it’s bollocks: the majority view among finance ministers is not what mattered until now: Wolfie Schäuble’s view (when approved by Mrs Rochester in the Chancellery attic) was all that mattered.

Again, the entry of Hollande into the equation changes all that. So Berlin has been ratcheting up the rhetoric via Der Spiegel which, in yesterday’s piece, moved into overdrive with this bit straight out of a Second Year school newspaper:

‘Other participants in the meeting also had harsh words for Sachinidis, with particularly strong criticism towards Athens coming from Portugal and Ireland, countries that have also accepted bailouts in the crisis. The countries say it is unacceptable that they have made serious efforts to fulfil the European Union’s guidelines for consolidating their budgets while Greece incessantly breaks its reform agreements. It was the Greeks, they noted, who poured oil on the flames and repeatedly caused the whole euro zone to catch fire with their repeated negligence, other ministers added.’

That would’ve made even Goebbels cringe: harsh words, incessant rule-breaking, pouring oil on flames, whole eurozone catching fire, repeated negligence repeatedly repeated….‘other ministers added’. Dear oh dearie me: synchronised Athens-bashing.

Taking the opposite view to mine, Bloomberg this morning argues that

‘This logic [Slogic?] underestimates a crucial element of the euro area’s political economy: in a union of partially sovereign members without a supranational authority, concerns about moral hazard — the possibility that leniency towards Greece will encourage other countries to misbehave — still carry a lot of weight. Euro-area leaders are not bluffing when they threaten to cut off support from the European Central Bank – and let the Greek government run out of money.’

There is some evidence to support that view. Yesterday Mario Draghi (I understand) flatly refused to give further liquidity help to four Greek banks. But it would be a mistake, I think, to see that as a bargaining chip: he did it because, quite wisely, he regarded it as good money chasing bad. Signor Draghi faces a genuine dilemma: he most emphatically does not want Greece to quit the euro (if more people did the sums, they’d understand why) but in turn, he cannot empty the ECB to save one country’s banks. The Greek banking system is on a knife-edge, and if it collapses even partially before June 17th then everything could change.

Here too, the logic is clear – at least to me: if you stay in the damned euro and your banking system collapses anyway, what on earth is there left to fear about leaving the euro? Draghi and Brussels have a real problem here.

Finally, I stick with my geopolitical view on Greece – and also my experience of tracking how and why Geithner’s amputation plan for Athens went wrong: the eurocrats are now fully awake to the reality of the staggering mineral and energy wealth that lies under Greek territorial waters. They really do fear that the Americans would like it for themselves….and they’re right. (So would Recep Erdogan, but that’s a topic or another day.)

I sense that the German era of neurotic moralising is about to draw slowly to a close. As of next year, Geli und Wolfie may well be in enforced retirement, and – let’s face it – Hollande and the German SPD leadership would get on like a house on fire. Even if it had been set alight by those beastly, greasy Greeks pouring their nasty olive oil onto the flames and setting everything alight in a repeatedly repetitive manner.

A the end of this argument, however, there seems to me – still – absolutely no way the eurozone can survive. Spain is a basket case, Italy is heading in the same direction, Ireland could still vote against Fiscal Union, and Greece’s debt (even under the bailout schedule) is unrepayable. As for the EU, I think things are looking a lot more hopeful for the europhiles than they were six weeks ago. What comes out of this week’s summit sessions will tell us quite a bit about that. Let’s wait and see.

and....

http://www.telegraph.co.uk/finance/debt-crisis-live/9283848/Debt-crisis-live.html

21.15 Reports of a EU-wide system to guarantee bank deposits first surfaced at last week's G8 summit, according to reports in the Italian media. The Corriere della Sera newspaper said that the proposal would guarantee bank deposits to "stop the haemorrhaging of funds from one country to another, from the south to the north".

21.11 So why the sudden surge? One rumour (and I stress the word rumour) doing the rounds is this:

and......

http://www.zerohedge.com/news/reality-recedes-rumor-rampage-returns

As Reality Recedes, Rumor Rampage Returns

Submitted by Tyler Durden on 05/23/2012 16:21 -0400

Equities and broad risk-assets were generally in sync today until around 1430ET when between rumors of a Euro-wide deposit-guarantee 'scheme' - which we had already dismissed as impossible short-term, very unlikely medium-term, and not a long-term solution to redenomination/insolvency risk - and Kocherlakota's hints as NEW QE if the fiscal cliff arrives - US equity markets took off (as did Gold). S&P 500 e-mini futures (ES) pushed to more than 12pts rich to CONTEXT (our proxy for risk-assets based on TSYs, FX carry, credit, and commodities) on all that hope - stalling at yesterday's late-day heavy volume swing highs. Of course the high-beta momo monkeys were pounced on and AAPL as well as the major financials all popped notably - breaking above yesterday's closing VWAP. Today was a low average trade size day - the lowest in a week (but a relatively high volume day) - after a large average trade size day yesterday which smells like algos pushing to enable larger selling (especially as we expect a denial any moment from Europe). VIX plunged off its highs but closed only marginally down with ES closing very marginally higher on the day - so some context is required to avoid anchoring bias intraday and while TSY yields did pop and EUR rallied after equities got going, they remain notably divergent from that sur-reality. Gold and Silver surged on the QE/EU hopes as well but remain down 2% and 3% on the week.

Trying to gauge equity's performance relative to the rest of risk assets is tough so we use the CONTEXT model below - which stayed nicely in sync until the full-retard hope trade came back in the last 90 minutes or so of the day...

And digging into some of the detail - equities started the silliness along with Gold (green arrows) and USD and TSYs followed (red arrow) after 30 mins or so - dragged by correlations but clearly a lot less impressed by the 'chatter'...

Credit markets were not as enthused as stocks into the close (though did get retacked tighter/higher as stocks rallied)...

S&P 500 e-mini futures saw average trade size drop notably today (lower pane)...

and medium-term it appears ES managed to rollover at yesterday's heavy volume swing (blue region and green arrow)...

In the majaor financials, JPM and Citi managed to scramble back into the green YTD, but BofA outperformed on the day - even if Morgan Stanley was the best off the pre-rumor lows (+4.3%!)...

but while Facebook managed to gain over 3% - it clung to yesterday's VWAP like lint to a hoodie...

Broadly speaking cross asset-class correlations were rising through the European day into early afternoon in the US but as the right chart below shows - cracked as stocks soared on the full-retard afternoon exuberance...

VIX also seemed a little rich early on (above chart left), fell towards crediot/equity fair into the afternoon then ended notably below fair (cheap) into the close.

Charts: Bloomberg and Capital Context

Bonus Chart: Gold vs Gold Lease Rates

Based on an idea (h/t @SoberLook), we looked at the rolling correlation between gold and gold lease rates and found that during periods of non-intervention the 'rational' positive correlation between the two holds but once central bank interveners begin (QE1, QE2, Twist, LTRO) then correlations flip and the irrational becomes the new normal...

Bonus Bonus Chart: European sovereigns did not explode as much as FX, equity, and corporate credit markets might have expected today... perhaps the reason is seen below - as we have talked about recently - there is a growing trade-arb to get short LTRO-facing financials credit against a long credit position in their domestic sovereign - 3 major pushes for that trade here...

and one rumor de jour is .....

http://www.zerohedge.com/news/what-europes-loan-deposit-ratios-look

This Is What European Banks' Loan-To-Deposit Ratios Look Like

Submitted by Tyler Durden on 05/23/2012 16:25 -0400

European Central Bank

fixed

Loan-To-Deposit Ratio

For those who feel like spreading rumors about European deposit insurance, please do. But at least have some sense about what it would entail. European banks already have the highest loan-to-deposit loan-to-deposit ratio in the world. This means they are massively more levered, roughly 3x more, the US banks. In other words, deposit "encumbrance" is already absolutely maxed out. Think the ECB can credibly backstop Europe's €11 trillion deposit market, withGermany's agreement? Good luck.

And incidentally all of this was already previously discussed by Zero Hedge, precisely two months ago, when at the height of the market we made a very clear explanation why A Few Quick Reminders Why NOTHING Has Been Fixed In Europe. Among other things, we said:

Actually, there is one more thing. Deposits, or specifically, the Loan to Deposit Ratios of European banks. The chart [above] explains why not only is Europe's several asset constrained, it is also running out of funding, in the form of depositor cash: the most critical bank liability.Remember: without incremental deposits, banks can not invest in new assets, unless they generate cash from operations, and thus grow shareholder equity. There is a problem: as the final chart below shows, Europe, and especially Scandinavia which has consistently remained off the radar, is literally off the charts when it comes to LTD ratios.

With banks such as Danske, SHB, Swebank, DnB, and Nordea literally at 200% Loan-to-Deposits, but most other European banks too, even the tiniest outflow in deposit cash (ala what is happening in the PIIGS) will send the system into yet another liquidity spasm. Only this time, since what little unencumbered assets remaining have already been pledged to the ECB, there will be no quick LTRO collateral-type fix this time.

And judging by the market's reaction today, more muppets, pardon, people are starting to grasp this.

Alas, we were too quick to judge the muppets, which continue to fall for every BS rumor over and over.

and with the newsflow basically gloomy and thae latest non emergency summit not likely to result in anything meaningful , the rumorflow takes on a life of its own by necessity......

http://www.guardian.co.uk/business/2012/may/23/eurozone-crisis-france-germany-divide

Eurozone crisis: Germany and France clash over eurobonds at summit

French president François Hollande marks his Brussels debut by challenging chancellor Angela Merkel over bailout

Ian Traynor in Brussels and Patrick Wintour

guardian.co.uk, Wednesday 23 May 2012 15.37 EDT

Angela Merkel and Francois Hollande, Brussels, 23 May

Eurozone leaders Angela Merkel and Francois Hollande talk ahead of the latest Brussels summit. Photograph: Lionel Bonaventure/AFP/Getty Images

European leaders were locked in deep divisions over the future of Greeceand the single currency, with Germany and France at loggerheads for the first time in 30 months over how to restore confidence in the euro.

A special EU summit marking the debut of France's President François Hollande saw him challenge Germany's chancellor, Angela Merkel, on the euro, arguing that the pooling of eurozone debt liability – eurobonds – had to be retained as an option for saving the currency. Merkel has ruled out eurobonds as illegal under current EU law.

The fissure between Paris and Berlin widened further when Hollande also called for the eurozone's new bailout vehicle to be allowed to draw funds from the European Central Bank and recapitalise banks directly. Both proposals are being fiercely resisted by Berlin and are also currently impossible under EU law.

Senior German government officials insisted that eurobonds should not even be discussed at the Brussels summit. However, the Hollande team maintained that all topics were on the table and intimated that France could refuse to ratify Merkel's fiscal pact compelling debt and deficit reduction in the eurozone unless eurobonds were recognised as a possible potential tool.

The Franco-German clash was framed in terms of the German-backed austerity measures which have dominated for the past two years against a new French-led drive for growth policies at a time of record eurozone unemployment.

A series of marginal measures likely to be agreed entailing use of EU funds and increased capital for the European Investment Bank to finance growth projects were criticised by economists and analysts as "a PR exercise". Hollande's advisers also said they were inadequate to the scale of the challenge confronting a eurozone which could unravel.

In what appeared to be a shot across the bows of the French, meanwhile, Germany's central bank warned for the first time that if the Greek crisis came to a head, Germany's and the eurozone's interests would be best served by Greece's exit from the currency.

According to the Reuters news agency, the 17 governments of the eurozone were told on Monday to draw up individual contingency plans for a Greek exit. The Greek government denied that such an instruction was issued, but not before investors, fearful of a disorderly break-up of the euro, led a sell-off on global stock markets. The FTSE 100 fell 136 points, or 2.53%, while the leading indexes in France and Germany saw similar declines

The Bundesbank in Frankfurt said that Greece was threatening to renege on the terms of its €130bn (£104bn) euro bailout. "The challenge this would create for the euro area and Germany would be considerable but manageable," the statement said. "By contrast, a significant dilution of existing agreements would damage confidence in all euro area agreements and treaties … calling into question the institutional status quo."

The timing of the Bundesbank warning appeared to be directed at the talks. It said that given the risks involved in bailing out Greece, eurozone governments should reconsider their lifeline to Athens.

No decisions were expected. Herman Van Rompuy, who was chairing the summit, said there should be no taboos and appeared to support French pressure for a discussion of eurobonds by calling for a debate on longer-term integration measures in the monetary union.

Merkel appeared isolated, while Hollande enjoyed the discreet support of the Spanish and Italian governments as well as the European commission, which is now backing the drafting of a "road-map" on the medium-term prospects for eurobonds. In his mediating role, Van Rompuy, the president of the European Council, is also expected to establish a eurobonds feasibility study.

With Berlin and Paris looking seriously at odds, no hard decisions are expected until the end of next month and after the Greek elections and French parliamentary poll on 17 June. That suggests weeks of greater uncertainty and friction between Germany and France which will unsettle the financial markets even more.

Fresh from the G8 Camp David summit at the weekend, Hollande also sought to play the American card, referring to the efficacy of Brady bonds used by the US to solve the Latin American debt crisis of the 1980s. Merkel responded that eurobonds would "not make any contribution to stimulating growth".

It emerged that the Obama administration had sought at the weekend to "impose" a much tougher G8 declaration on the crisis in the eurozone, but that Merkel had fiercely resisted and that the summit communique had to be rewritten as the US draft was too "awkward".

The growing international exasperation with the Europeans' halting response to the crisis was echoed by Nick Clegg, the deputy prime minister.

In a speech in Berlin he said that some world leaders "are saying behind capped hands that Europe is now congenitally incapable of exercising the leadership needed and it might be in everyone's interests if Greece left the euro".

Clegg added: "We must build a firewall big enough and strong enough to stop the flames from spreading." But Britain is not involved and refuses to take part in the rescue effort.

Senior EU officials also voiced exasperation over some of the recent statements from David Cameron, the prime minister, advising the eurozone what to do.

Despite the differences between Paris and Berlin, Hollande and Merkel, say well-placed sources, are united in opposing a Greek exit from the euro in the belief that keeping Greece in will be hugely expensive but nonetheless much cheaper than letting it go. "There are too many unknowns," said the source.

But Merkel and Hollande disagree on tactics towards Greece, with the French favouring sending a signal on easing the schedule for Greek deficit reduction while the Germans believe this would encourage Athens to compromise on the austerity measures.

http://www.guardian.co.uk/business/2012/may/23/eurozone-crisis-france-germany-divide

Catharsis Ours

Wednesday, May 23, 2012

Rumors de jour - QE hints from Fedheads , Eurozone wide deposit guarantee scheme ( quashed as no mention in recently concluded presser ) , helped to lift the US equity markets from a deep red day. So what happens Thursday when nothing of merit actually comes to pass ?