Peering over the cliff – after Greece, who?

I know Greece is the main story today. But for that reason it is being covered by all the main outlets. What can I add? I don’t have their contacts or man power. So I think I can best help by looking ahead a little.

While Greece and Germany are locked together in an unhappy embrace take a look at Portugal’s banks. Their banks have lost 5% and more this morning. Off share prices that are in pennies to start with. They are hanging by a slender thread. Next door in Spain, Sanatander, one of my personal favourites up there with Commerz is also losing share price.

The Portuguese banks cannot sustain very much more share price loss. While Santander, for its part, looks fine but, I maintain, is an hollow colossus, much as RBS was.

The CDS market, however, now looks like it is turning, or may turn depending on how you read it, to the UK and Germany. I think Merkel knows this and is what she has to weigh up. Which way is Germany screwed worst? Don’t bail out Greece, – maybe your banks take large hits and have to be bailed. Do bail Greece out and maybe watch your own CDS costs start to increase.

Why would they increase? Well the markets will wonder if, nay, start to bet that, Germany will be forced into helping Portugal and then others in turn. How sure could the market be that Portugal would need help? Well fairly sure since the market can make it happen. And they will because that is how they intend on making their next killing. Insecurity is profit. As long as you’re on the right side of the bet. The lovely thing about sovereign nations is they nearly always take the wrong side of the bet. Think of the BoE trying to defend sterling and Soros betting it wouldn’t work.

I think this is the real debate – for all countries now it is weighing up getting screwed worst versus getting screwed soonest.

Germany will get screwed worst if they bail out Greece and it doesn’t solve the situation. Their woes multiply if Greece is bailed and then they find Portugal and Spain and Italy all starting down the same path Greece has been on. And they will. They have to. Their debts are bad, their earning power is not enough and most important of all, the banks – the big ones in every country are fighting for their own survival. This I believe is the critical factor.

The ONLY way the big and indebted banks in every country, can survive, is by making large, very large profits very quickly. They have large losses still accruing and need to off-set them. They WILL NOT do this through ‘lending to small and medium businesses to promote recovery’. That is political prole-fodder. The banks have to make the kind of profits that they can ONLY make by speculating on large moves. Luckily for them (Mammon be Praised!!) they can ‘help’ make those moves happen.

I contend that other nations will be pushed down the path Greece has been on, even though they start from their own unique and different situations. Where they start from matters less to the markets than where they can be pushed to.

The nearer the edge they can be ‘helped’, the more money can be made.

All of which would make you think Germany would be mad to bail out Greece. BUT, but, if they don’t, they get screwed faster. It is immediate. The next minute or less spreads of debt yawn open like a greedy mouth.

All our current political class are too cowardly to face this very nasty choice – which they have made for themselves.

I expected Germany to put off making any bail-out for as long as possible. To insist on draconian cuts and details of more cuts after those. This has happened.

I expected the IMF to be delighted. They are. They, and therefore Washington, are back in the European game as a player.

I expect Germany to be blackmailed and to say they are now going to join a bail-out plan. I think there is still a strong chance, however, they will say, we’re in, there’s a commitment, but we still have to pass a law before the cash flows.

I think it will still unravel as Argentina’s various plans did when they were insolvent.

But most of all I expect this turmoil, even if it lessens in the short term ( which it may not) but even if it does, I expect it to build again and move to larger countries.

So lots and lots of hostages to fortune there. Let’s see.