PreMarks: Down on Europe

Markets are looking to be lower by 1-2% on European concerns over a Greek default.  Bloomberg is telling you all you need to know about it here. {Germany Readies Surrender Over Greece.}   {Excerpted}

"Germany may be getting ready to give up on Greece, as measures in the credit markets signal growing concern about the smaller nation’s ability to repay investors. Yields on Greek two-year notes rose above 60 percent today for the first time......

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.....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.

Protecting their banks and a hardening of rescue terms risk isolating Germany and unnerving global policy makers already fretting that the region’s political tussles are roiling markets and threatening growth.... 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 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. More evidence of rifts at the heart of policy making was exposed with the unexpected Sept. 9 announcement that Juergen Stark, a German, will quit the European Central Bank’s executive board over his opposition to the ECB’s purchases of bonds from debt-laden countries.   "Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” said Julian Callow, chief European economist at Barclays Capital in London. “This could complicate Germany’s involvement in additional bailout programs.” ....

...Among banks outside Greece, German lenders were the biggest holders of Greek government bonds, with a total of $14.1 billion at the end of March, according to consolidated banking statistics from the Bank for International Settlements. French banks followed with $13.4 billion. The German figure includes loans given by government-owned Kreditanstalt fuer Wiederaufbau as part of the first Greek rescue program.  The aim of the contingency plan is to shield German banks from losses from a possible Greek default, which has a more-than 90 percent chance of happening within five years, prices for insurance against default show.

The plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next portion of Greece’s bailout is withheld, said the three officials, who declined to be identified because the deliberations are being held in private. The successor to the government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.  

“Germany is preparing for the worst, which is that the crisis in the euro zone is going to be much bigger for everyone,” Erixon said.  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......With a loss in her home state of Mecklenburg-Western Pomerania, Merkel’s coalition has been defeated or lost votes in all six state elections this year as voters reject putting more taxpayer money on the line for bailouts. Merkel has also antagonized markets and fellow leaders by initially holding out against aid for Greece and demanding investors pay a share of the assistance....Fifty-three percent of Germans oppose further aid for Greece and wouldn’t save the country from default unless it fulfills terms of the rescue agreement, Bild am Sonntag reported, citing an Emnid poll of 503 respondents conducted Sept. 8."

My thoughts:  Looks like the Germans have finally had enough and figured out that it's cheaper to bail out their own banks than the Greeks.