This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Germany Is Smart to Plan for Death of Euro

(Clarifies the original Nov. 30 article to say the Greek and Ireland bailouts were conducted by the EU and IMF.)

NEW YORK ( TheStreet) -- It makes sense that there is a secret group within the German Bundesbank working on a plan to resurrect the Deutsche Mark. It would be a gross failure of national risk management if the central bank did not have a plan. Call it Operation Vollkreis.

Sovereign Extend and Pretend

Isn't this script getting a little tattered? Talk of a crisis starts. Sovereign yields rise. National politicians say no need for intervention. Austerity measures are introduced. Bond yields rise even more. Bailout is announced. Attention is then focused on the next domino.

Greece bought a couple of years with a 110 billion euro bailout by the European Union and the IMF.

Ireland has bought a couple of years with an 85 billion euro bailout, also by the EU and IMF.

Attention is now focused on Portugal. On deck is Spain, which is "the big one" (representing almost 11% of euro zone banking). To be very clear, the European Financial Stability Facility does not have the money to bail out Spain (though it can handle Portugal) -- nor is it realistic to think that the EFSF can be recharged to cover more than a few of the smaller peripheral countries.

More seriously -- what happens after Spain? The next big ones are Italy, Belgium and France.

There is only one country in the euro zone capable of bailing out the euro zone members: Germany. In my opinion, it is getting near to the point where the cost to Germany exceeds the benefit.

Who Is to Blame?

It is important to understand the differences between the collapses of Iceland, Greece and Ireland.

Let's start with Greece. This country was fiscally irresponsible. It racked up massive government debt paying for social programs that it could not afford. Investors foolishly (in hindsight) thought that Greek debt was no more risky than German sovereign debt. Greece's problem was that of fiscal mismanagement.

Given the political difficulty in implementing austerity measures, usually a country's currency is devalued. However, there was no Drachma to devalue. The country is stuck in the euro zone. The only choices the country has are sovereign default, extreme austerity, return to the Drachma -- or being bailed out. You know what was decided, but it really just buys Greece three more years.

1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%
YHOO $44.28 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs