It has been a busy few days for Germany. In the space of a week, they have warned Greece “there will be no blackmail,” adding that a Greek exit from the euro was “manageable,” only to hours later deny (clarify) these comments. This was then followed up with beggars-are-choosers Syriza demanding any ECB QE must buy Greek bonds (or else) – which Germany has flatly ruled out – only to see today that Syriza is practically guaranteed to win a “decisive victory” at the forthcoming snap election. So it with a wry smile that we note Bild reports tonight that the German government is preparing for a possible Greek exit, warning of financial system collapse, bank runs, and huge costs for the rest of the EU.
Germany has been flip-flopping (as Reuters notes)...
Der Spiegel magazine reported on Saturday that Berlin considers a Greek exit almost unavoidable if Syriza wins, but believes the euro zone would be able to cope.
Vice Chancellor Sigmar Gabriel said on Sunday that Germany wants Greece to stay and there are no contingency plans to the contrary, while noting the euro zone has become far more stable in recent years.
As the euro zone’s paymaster, Germany is insisting that Greece stick to austerity and not backtrack on its bailout commitments, especially as it does not want to open the door for other struggling members to relax reform efforts.
We have always argued that a Grexit would be painful for both the Eurozone and Greece, but relatively more painful for the latter. As such, it has always seemed unlikely that Greece would unilaterally seek to exit the euro. This still seems to be the case, though there have been internal shifts. As we noted in Part 1, the economic and financial contagion from a Grexit could likely now be more easily contained. This allows the Eurozone to take a harder line with Greece, not least since giving into SYRIZA, will send the message to Podemos and others that fiscal discipline etc is fair game.
The only question is whether this time anyone will believe the rhetorical “whatever it takes” threats uttered by the one central bank which for the past 4 years has proven it is utterly incapable of acting, instead chosing to talk each and every day, a strategy that has worked brilliantly, until now.
Full article: Bild Warns German Govt Fears Greek Bank Runs, Financial System Collapse; Prepares For Grexit (Zero Hedge)