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Teutonic Frugality Hinders Greek Rescue Plans

The Weimar Republic lasted only fourteen years, from 1919 until 1933, ending with the arrival of Hitler's Third Reich, but the consequences of the hyper inflation from that period remain a fixture in the German psyche.  So far the Germans have given lip service to the concept of a Greek bail out, all the while struggling with an idea so alien to the concept of Teutonic frugality.  Allies of Ms Merkel's Christian Democrat party, the Bavarian CSU contend that it is best to let Greece fail, restructure their debt, and then return to the euro community.  Perhaps this idea is one of the reasons Greek 10 year paper soared to 9.58% this morning.

There are two problems that impede German assistance.   As reported by the AP this morning:

"The German government has committed to putting the issue through parliament, but Chancellor Angela Merkel faces a crucial regional election in North Rhine-Westphalia, its most populous state, on May 9 and appears reluctant to move on the Greek bailout before then.

Merkel said Monday that Athens must be prepared to accept more tough measures "not just for one year, but for many years" to bring its finances into order."

If indeed, the Germans are going to keep the Greek's in limbo until after the May 9th election, this does not bode well for the Euro.  The second Greek problem is a fear among some bankers that the current estimated bail out, €45B contribution from the euro community is only the opening deposit.

Should a miracle happen and  a solution emerges, that will not be the end of the euro's problems.  As reported by Ambrose Evans-Pritchard  in this morning Telegraph.UK:

"The relief rally fizzled shortly after Greece folded its bad poker hand and invoked aid. Bond risk as measured by Markit's 5-year credit default swaps jumped to fresh records of 280 for Portugal and 177 for Spain. Irish CDS contracts rose 13 points to 185.

This was an entirely logical response to the twisted events that are unfolding. The rescue obliges countries in trouble to go deeper into trouble. Portugal must come up with €774m as its share of the EU's initial €30bn package. Ireland must find €491m, Spain €3.7bn......The bail-out cost falls hardest on those that can least afford it. It deepens the North-South divide that lies at the root of Europe's crisis."

Money, so easy to come by during the good times has now become dear.  Are we getting close to some real estate bargains in Algarve Portugal of Fuengirola Spain?

The euro did have a bounce on Friday from the low of 1.32 to a recovery today at 1.3396, but now we are trading at 1.3330.  With so many potential problems, and a lack of leadership and resolve for the causes of the euro, this market looks like it is headed lower.



Disclosure: no equity positions