The battle over Greek collateral took another interesting turn as the German Labour Minister hopped into the fray asking for gold as collateral.

The Irish Times reports Merkel faces fight to restore order after intervention on collateral

BACKGROUND : Minister’s remarks rapidly sent German officials into full damage limitation mode

URSULA VON der Leyen picked her moment well.

Hours before a crucial meeting of Germany’s ruling Christian Democrats (CDU) yesterday, as a summer storm rolled through the German capital, the labour minister suggested Germany should follow Finland’s lead on Greece.

Rather than simply hand over further loans to Athens, money many Germans believe they will never see again, Dr von der Leyen suggested Berlin should ask for collateral. Gold, preferably.

As thunder rolled overhead, the suggestion hit home like a political thunderbolt.

One month after euro zone leaders agreed a bailout reform package, and a month before the package goes to vote before national parliaments, a senior German minister appeared to be calling for a renegotiation.

On an aircraft back from Belgrade, a thin-lipped chancellor Angela Merkel reportedly told advisers: “I’m going to have to have a word with Ursula.”

“This is sub-optimal,” groaned a senior government source. “No one is amused.”

European Commission officials in Brussels are less optimistic the collateral row is over.

The warning was clear: opening a political can of worms could spook markets and throw everything into question, including Ireland’s own future loan terms.

Were yesterday’s remarks a summer storm in a teacup, a strategic show of independence by an ambitious minister – or more?

That depends on whether Dr Merkel and her officials can cut dead the collateral discussion in Berlin. That will be difficult if the proposal finds favour among CDU backbenchers and the tabloid press.

For a look at other nations demanding collateral, please see Moody’s Warns Against Collateral Proposal; In Response, Finnish PM Warns Finland will Not Sign Second Greek Bailout Without Collateral; Merkel Madness

So, not only might Finland, Austria, Slovakia, and the Netherlands tell the EU, the ECB, and the IMF to “go to hell”, a revolt in Germany shows the matter is unsettled as well.

As icing on the collateral cake, a constitutional ruling in Germany on bailouts, (I believe a correct one that requires collateral) might end the discussion once and for all.

Mike “Mish” Shedlock


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