Germany: Orderly Default Of Greece Is On The Table

So after rounds of rumours that Greece would default, at least it hasn’t happened at the time of writing, and the Prime Minister George Papandreou said once again that Greece will not default and leave Euro while announcing some new measures (never mind what they are).  The Troika will also be back in Greece to review government’s progress according to Reuters.

Well, don’t feel relax though.

Now Germany is not ruling out default.  On Saturday, we did hear that Germany is preparing itself for a Greek default under both scenarios of Greece staying in Euro and Greece returning to Drachma.  The latest story, according to Reuters, is that the Economy Minister of Germany said an orderly default is “no longer a taboo”.  So at last, they are facing the reality that the situation here is unsustainable.

From Reuters:

An orderly bankruptcy of Greece is no longer a taboo, German Economy Minister and leader of Chancellor Angela Merkel’s junior coalition partner, the Free Democrats (FDP), said on Sunday in an article for a newspaper.

"To stabilize the euro, there can no longer be any taboos. That includes, if necessary, an orderly bankruptcy of Greece if the necessary instruments are available," Philipp Roesler wrote in an article for Die Welt daily.

How to do this in an orderly fashion?  No one has any idea.  The first thing which comes to mind is that Greece’s banks are large holders of Greek sovereign debts.  If the Greek sovereign defaults on its debt, Greece’s banks will then become largely insolvent as they mark the debts down to market.  Even if Germany gives up on saving the sovereign, someone has to come in to save Greek banks.  My bet is that orderly default is not exactly possible.

Whatever, the coming weeks might be… interesting, to say the least.

For more news and analysis, visit Also sprach Analyst. Follow us on Twitter and Facebook.

Get our daily email update FOR FREE!

Like this? Share it with your friends with the buttons below!

You may also like:

Citi: Probability of Greek’s Euro exit rises to more than 50%Be Shocked? Or be worried? French and Greek ElectionsThe consequence of fiscal austerity in parts of a monetary unionEurozone economy: the slow-motion train wreckEuro crisis is not over. Just how surprised should you be?

About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.