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Greek Bond Yields Getting ‘Merkeled’ Higher

Silvia Wadhwa|CNBC Reporter
Monday, 26 Apr 2010 | 6:24 AM ET

The German language has been "enriched" by a new word that might well make it into international dictionaries: Sich durchmerkeln.

German Chancellor Angela Merkel
Getty Images
German Chancellor Angela Merkel

Literally, it means "to Merkel through." It translates into something like "to bumble along without commitment, hoping that a critical situation will solve itself by postponing decisions.”

Doesn’t that pretty accurately sum up Angela Merkel’s (and with that the German) position on Greece?

OK, the suffering German citizens have been acquainted with the "durchmerkeln" of the present Chancellor for some time -- for almost 5 years in fact -- but for the international community who celebrated Angela Merkel as "Germany’s iron lady" and as somebody who played very well on the international stage, the now ever-more-apparent style of ducking and dodging unpopular decisions may come as a bit of a surprise, if not a veritable shock.

Two things are crystal clear.

First, paying hard-earned German tax euros for saving Greece is highly unpopular. That’s hardly surprising. The majority of the Germans feel they are rewarding Greece cheating itself into the euro, forging its balance sheets and then spending a decade living beyond their means while the German workers had to march through a rather painful valley of restructuring and wage freezes.

Second, Angela Merkel’s and Germany’s exasperating "we help you, we help you not" on Greece has already cost the German taxpayer more money than he or she would care to shoulder.

Two months ago, when EU leaders first assured Greece of European support in its plight, Greece could refinance itself in the markets for 6 percent or more on bonds.

Up popped Angela Merkel to say "we might help Greece if the conditions are right" and the Greek government had to pay 7 percent plus. This rollercoaster ride on yield spreads continued over the weeks, and every time there was yet another almost-rescue deal on the table, promptly followed by a Merkel-esque "we haven’t actually said yes yet,” the yield gap between Greece and the rest of euroland widened more dramatically.

Now that we have the latest "almost-there" rescue package on an ever more shaky table, Greek government debt has to be refinanced at 10 percent plus and counting.

And again, Germany continues with its strategy of "durchmerkeln". No sooner have the Greeks said the money will flow before May 1, German Finance Minister Wolfgang Schäuble declares to the assembled press, "We are not writing any blank checks ... A NO is still a possibility."

Still No Clarity on What Will Be Done

It’s still unclear how much of the "durchmerkeln" is still just playing for time and trying to zigzag through the minefield of German political and constitutional issues.

While all the voices that can be heard -- from government as well as all the parties of the opposition -- clearly underline the need to help Greece and to stabilize the euro zone, there is quite a difference of opinion as to what needs to be done to get there.

Merkel and Schäuble reckon they can just decide on the discussed Greek aid package on their own, without bringing in extra legislation to free to funds. The 8.4 billion euros ($11.2 billion) Germany is supposed to supply as its share for the Greek bailout comes through credit guarantees that are effectively given by the KFW (the German government’s bank). So no budget funds are needed -- certainly not at this stage -- and there is technically no direct state aid.

Needless to say the opposition very much disagrees.Their line is that the federal budget has already been passed, without any provisions for a Greek rescue. Hence a "Nachtragshaushaus," an amended budget needs to be presented, prompted by special legislation freeing the funds for Greece.

And that’s what Finance Minister Schäuble wants to talk to parliamentary representative about in Berlin Monday.

German politics are about wheeling, dealing and compromise -- very much like for Europe as a whole -- and the rest of the world better get used to it fast. Merkel-esquesness has been reasonably efficient (albeit at times exasperating) in the past. So take a breath and watch this space.

What´s the likely outcome? Schäuble will give the opposition their special legislation and their day in parliament. In exchange the opposition will give him and Frau Merkel and Greece a speedy approval of the legislation and for freeing the funds for the emergency euro rescue.

Before the planned euro rescue becomes just a salvage operation that leaves Greece stranded and the rest of the euro zone with torn topsails and a broken mast and really on a course to nowhere.

Let’s not mix up cause and effect. The Greeks caused this crisis; they lied themselves into the euro, lied a bit more to dodge the ever more frequent market bullets and then did very little to get their house in order while they still could.

But Germany’s "durchmerkeln" has cost Fermany, Greece and the whole of Europe already more money than Greek creative accounting and lack of budget discipline. And every day it costs more.

The French headlines that are suggesting that Germany might be "shooting itself in the foot" by postponing a decision on Greece time and time again (presumably just to get past that crucial state election in North-Rhine Westphalia May 9) are more than candid: German banks are among the biggest creditors of an on-the-brink-of-default Greece. The biggest single creditor is a little state-owned (well state-rescued) bank called HypoRealEstate.

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