“Orderly defaults” has a nice ring to it. Somehow I suspect when Greece defaults it will be anything but orderly. Nonetheless it is interesting to hear the word default bantered about so soon after an announcement of a $145 billion bailout for Greece.

Please consider Merkel’s Coalition Calls for EU ‘Orderly’ Defaults

German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states burdened with debt to avoid a repeat of the Greek fiscal crisis.

Floor leaders of the three coalition parties agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.

Merkel, who faces elections in Germany’s most populous state on May 9, is seeking to shift focus from the Greek bailout to drawing lessons from the euro’s biggest crisis. An “orderly insolvency” process would ensure that creditors participate in any future rescue, she said on ARD television yesterday.

“We quite urgently need something for the members of European Monetary Union that we also didn’t have during the banking crisis two years ago,” German Finance Minister Wolfgang Schaeuble told reporters yesterday. “Namely the possibility of a restructuring procedure in the event of looming insolvency that helps prevent systemic contagion risks.”

Spain and Portugal are Endangered Species

Inquiring minds are interested ridiculous denial of contagion threats.

Spanish Prime Minister Jose Luis Rodriguez Zapatero said speculation of a bailout for Spain is “complete madness” and the nation has “strong solvency.” His remarks came as a 110 billion-euro ($143 billion) rescue package to help Greece avoid default fails to ease concern that swelling sovereign debt will derail the economic recovery.

“Spain and Portugal are both endangered species,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which manages $9 billion.

The extra yield investors demand to hold Spanish debt rather than German equivalents has risen this week as the European Union’s rescue plan for Greece failed to insulate other euro-area nations from the crisis. Even as Spain’s debt burden, at 53 percent of output, is lower than the EU average, its budget deficit is the euro region’s third-largest.

International Monetary Fund spokesman Bill Murray, in a statement released in Washington today, said there’s “no truth” to rumors about Spain.

“These rumors can increase the interest-rate differential compared with German bonds and damage our national interests,” Zapatero told a news conference in Brussels today. “This is simply intolerable and I can tell you that we will certainly combat it.”

Rumors Don’t Do Squat

Spain and Portugal are in trouble and attempts to talk that crisis down is silly. Rumors do not have any lasting effect. If Spain was in good shape, the market would shrug off rumors.

If Zapatero wants to can squash rumors with actions, all he has to do is show a credible plan to reduce its budget deficit.

So let’s see some action. Bazooka talk is laughable,

Mike “Mish” Shedlock
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