Juncker Throws Hissy Fit, Lashes out at US and Japan; Merkel Toes the Trichet Line, Warns Against Inaction

German Chancellor Angela Merkel is going down in flames with ECB president Jean-Claude Trichet. Members of Merkel's own party are in a major dispute with the Chancellor about more Greek bailouts. Finland has had enough too.

In spite of the Open Revolt Against Trichet wherein German Politicians Demand "Private Creditor Involvement", Merkel is proving to be as stubborn as Trichet.

Merkel Warns Against Inaction

Please consider Merkel Warns Against Inaction in Debt Crisis

German Chancellor Angela Merkel said Saturday that it was important to help indebted European countries in order to assure that a global economic upswing, and Germany’s economic health, were not undermined by further debt woes in the Euro zone.

In a message apparently intended to convince a skeptical German public that Greece and other struggling economies should not be allowed to default, Mrs. Merkel asserted that Germany’s own economic recovery could be endangered. “If we don’t act right, that could happen,” she said in her weekly video podcast, “but that’s exactly what we want to avoid.”

“That’s why we say that we cannot simply allow an uncontrolled bankruptcy by a country,” Mrs. Merkel said, adding that Europe needed to see how it could help struggling countries improve their competitiveness and also allow them to reduce their debts. She did not mention Greece by name.

“We must do nothing that endangers the global upswing as a whole and would then put Germany in danger again,” she said.

Wolfgang Schaeuble, the German finance minister, is pushing for Greece to get more rescue loans only if investors agree to get repaid seven years late on their Greek bonds. That would give the country more time to get a handle on its debt of 340 billion euros ($491 billion).

However, the European Central Bank, concerned about the reaction of the markets, says that Greece must not change the terms of its debt in ways that would put it in official default. Nevertheless, the head of a group that represents Germany’s private-sector banks signaled readiness to discuss the proposal.

Inaction Irony

Did you catch the irony in the "Inaction" headline?

Schaeuble wants action. So does the German parliament. So does Finland.

Merkel does not want "action" per se. Nor does Trichet. Instead both want the type of action that amounts to a "free lunch".

There is no free lunch, nor can bond holders have their cake and eat it too.

Trichet and Merkel Need to Join Real World

What cannot be paid back won't. Bondholders deserve to be punished for making stupid bets and taking stupid actions.

At the insistence of Trichet, the ECB took stupid actions of buying Greek and Irish debt against the advice of the German central bank. The ECB should be punished for its action.

Little kids who get caught with their hands in the cookie jar get punished. Trichet and Merkel are like whining crybabies throwing temper tantrums out of fear they cannot have their cake and eat it too.

It's time both join the real world. Trichet in particular acts as if he is above the law. The law being the Maastricht Treaty.

Juncker Throws Hissy Fit, Lashes out at US, Japan

Jean-Claude Juncker, president of the Eurogroup finance ministers, is in competition with Trichet for winner of the coveted "Biggest Hissy Fit Award".

Please consider Juncker: Greece Needs 'Soft' Debt Restructuring

Highly indebted Greece needs a "soft, voluntary restructuring" of its debt, said Jean-Claude Juncker, the head of the group of countries using the euro as a common currency, in a radio interview Saturday.

At the same time, he lashed out at the U.S., calling their debt level "disastrous."

Backing proposals by German Finance Minister Wolfgang Schäuble, Mr. Juncker told Inforadio Berlin Brandenburg that private lenders need to participate in a fresh aid program for Greece, but only on a voluntary basis.

Also, any such move has to be made in a way that credit ratings agencies don't interpret as a credit default, he said. And it needs to be done without the "danger of infecting" other euro-zone members.

In exchange for any fresh program, Greece needs to make sure it reaches its 2011 fiscal targets, Mr. Juncker added. "If Greek policies continue as they have in the first six months [of this year], then they won't reach the budget target," he said, adding that any additional aid would be linked to very strict conditions.

Not withstanding the euro zone's problems, Mr. Juncker said that both the deficit and overall debt in the U.S. and Japanese economy are substantially higher than in Europe.

"The debt level of the USA is disastrous," Mr. Juncker said. "The real problem is that no one can explain well why the euro zone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the euro zone are substantially better than those of the U.S. or Japanese economy."

Expect More Hissy Fits

Is Juncker's lashing out at the US and Japan supposed to calm the markets? What about Juncker's repeated call for "soft restructuring"?

We have seen a lot of creative names recently, including "reprofiling" However, default by any other name is still default.

Recall that Trichet threw a fit and walked out of the meeting the last time Juncker proposed "soft restructuring".

Juncker wants to help, but Trichet does not want that kind of help. Nor does Merkel who is in the same sinking boat with Trichet.

Ironies, finger-pointing, and temper tantrums abound. Everyone wants "action" but there is no consensus as to what that action will be (except of course from the bond market that is signaling default).

Signs point to more hissy fits this weekend and next week as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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