‘Default Is Not an Option’
02/21/2012 7:00 am EST
That’s what German Chancellor Angela Merkel is quietly telling others, and MoneyShow’s Jim Jubak explains why he thinks it means Greece’s fate lies in her hands.
Just remember one thing about the Greek and the Euro debt crisis: There’s only one person that counts, and that’s German Chancellor Angela Merkel. It’s actually good news for the Greeks.
But look at the background to all of this. We’ve got everybody and their Aunt Tilley talking with an opinion. We’ve got people saying, "Oh, this is an insult to Greek sovereignty." andÂ "We can’t trust the Greeks."
The German foreign minister is saying, well, it’s not a big disaster if Greece actually defaults because the Eurozone is better prepared. Then you’ve got people like Jean-Claude Juncker, the Prime Minister of Luxembourg and the head of the Euro Group of Finance Ministers, saying we’ll get this deal done. All this is making people really nuts.
The important thing to remember, as I said, is that none of this counts. Germany is the banker for this deal, and what Germany says is what’s going to happen.
Merkel keeps saying quietly—not making the headlines—that default is not an option. Default is not an option because she is reasonably afraid that if the Eurozone starts to unravel with a Greek default and departure from the euro, the whole thing goes.
It’s very hard if you’re a politician to say, well, the damage stops with Greece, and it won’t continue to Portugal. The German Finance Minister, Wolfgang Schauble, seems to think that that’s a guarantee. I think Merkel is a little more pragmatic, and says, well, nothing is guaranteed…so I think she’s determined to have it not happen.
She really doesn’t want to run this test in the real world. If she goes, I think she will take Sarkozy of France with her. The Dutch and the Finns, the other two really hardliners: "we shouldn’t give Greece another euro," will also I think go with her with some resistance. But she can really carry the whole group one way or another, and right now it looks like what she would really like to do is to avoid a Greek default.
The first deadline is Monday, March 20, when there’s another meeting of the Eurozone Finance Ministers, and they will probably approve something. It’ll be very interesting to see exactly what it is and how much real money there is on the line.
I think the probability is there won’t be anything. We’re going to take this all the way to the bloody end around March 20, which is when the Greeks have to pay bondholders—and could actually default—but this is not going to be done easily. It’s going to be done quickly.
The thing to do is to pay attention to what Merkel says.