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Deconstructing Europe: How A €20 Billion Liquidity Crisis Is Set To Become A €1.6 Trillion Funding Crisis

Tyler Durden's picture




 

Now that some sort of Greek bailout is imminent, most likely in asset guarantee form, it is high time to evaluate the full impact of Europe's decision to jettison monetary prudence at the expense of patching a crumbling fiscal dam holding back trillions in bad investment decision cockroaches, accumulated over the years. Relying on a presentation by ML's Jeffrey Rosenberg1, we observe that by providing loan guarantees to the periphery, the core (Germany/France/Benelux) may have well destabilized the core problem for the Eurozone, namely a whopping €1.6 trillion (that's in euro) in total 2010 financing needs, a number which consists of €400 billion in 2010 bond maturities, €700 billion in rolling short term debt and €530 billion in combined 2010 fiscal deficits. Germany has just taken an acute liquidity crisis in the periphery, and courtesy of action we already saw earlier in Bund rates, has sown the seeds for a funding crisis of none other than the very heart of the Eurozone.

First, in evaluating the fundamentals of the various "advanced economies" that make up the EU, we notice that shifting fiscal exposure to be in compliance with the G-20 requirement to have 60% or lower debt to GDP ratios by 2030, would require a "shift in the structural primary balance from a deficit of 3.5% of GDP in 2010 to a surplus of 4.5% of GDP in 2020 and keeping it there till 2030." As we have seen in our own recent budget projections, America will certainly not be able to turn a deficit to any palatable surplus at any point over the next 10 years. We find it extremely unrealistic that Europe will succeed where America's financial wizards have failed.

What Germany has done is merely to buy some time and moderate the near-term "solvency" crisis in the PIIGS, while exacerbating the true fiscal weakness underlying the European economy. Paraphrasing Merrill: "In the current episode, the focus of risk among Greece, Portugal, Spain and other peripheral members of the Eurozone is not a currency crisis. With their debt denominated in Euros, this crisis is a long term “solvency” crisis precipitating a short term liquidity crisis. Hence, the short term solution lies in addressing the liquidity crisis."

In essence, the ECB is merely providing the tried and true band aid approach made legendary by the Hank Paulson, Ben Bernanke and Larry Summers trio.

"[The table above highlights] that: 1) the issues facing the periphery of the Eurozone are by no means limited to these countries; 2) that in total the Eurozone structural deficits even if absorbed into the total Eurozone result in a lower degree of strain than either the US or the UK; and 3) sovereign risk over the longer run will not be limited to the periphery of Europe. the problems of the periphery countries could be easily absorbed by the Eurozone, such a choice would not come without consequences."

Indeed, according to official estimates, over the next 5 years the economic situation as quantified by Debt/GDP ratios is expected to deteriorated dramatically.

And this is all occurring on the backdrop of a proposed $1.6 trillion 2010 and $1.3 trillion 2011 budget for the US. Just who will come out, guns blazing and buy these tens of trillions of debt needed to finance what is rapidly becoming a global moral hazard liquidity crisis?

In quantifying the amount of "moderation" (read, cold hard cash either in direct funding form or via guarantees) needed to remove the liquidity crisis overhang, it is first necessary to evaluate the total upcoming debt maturities, and not just for Greece but for all the eurozone countries: keep in mind, moral hazard is now a pan-European phenomenon.

The table below summarizes the monthly scheduled maturities for the bulk of the Eurozone.

Yet the immediate test, as expected, is once again focused on the PIIGS (or GIPSI if one is so inclined) acronym: it is not surprising that a decision came out today - after all there is an auction scheduled for Portugal just tomorrow, while Italy will test the market with a €6-8 billion auction this Friday. Absent today's (dis)information campaign, the Portuguese auction would have certainly been another failure. Yet by and far the country with biggest near-term risk is Spain, which will need to finance €30 billion in February. Subsequently, critical auctions follow in Portugal for €3.9 billion in March and in Greece for €12.4 billion in April.

But why stop here: now that all European debt will be brought to the lowest common denominator, namely the demand for German securities, which is at the heart of the backstop plan, it implies that global European funding requirements have to be evaluated in total, and not piecemeal as we did until today. When compiling this data, we attain a shocker: the Eurozone will need to finance, roll and fund deficits to the tune of €1.6 trillion in 2010 alone. Keep in mind that the U.S. faces a very similar situation, as it has to fund roughly $1.7 trillion in net issuance in this calendar year, and prior analyses indicate that there will likely be a $700 billion shortfall absent a dramatic upswing in rates. What this means for Bund rates... is not all that complicated.

It is sheer lunacy if the ECB and Germany believe that the guarantee program will not wreak havoc on their plans to quietly fund this massive hole. And there is more. Merrill notes:

The greatest near term risk is a policy error. One likely candidate is attacking the symptoms of the crisis rather than the causes. Banning short selling during the financial crisis had little impact in stemming the declines, and similar calls may emerge in the current sovereign risk scenario. As in the financial crisis, policy interventions do not come without cost. The moral hazard of supporting poorly disciplined government finances only encourages bad performance in others. But the alternative likely will be a greater and uncertain outcome. Near term, we expect further weakness in periphery sovereign debt spreads to German benchmarks, further weakness in the Euro and continued headline risk out of the sovereign risk story before ultimately these accelerating liquidity concerns and rising debt refinancing costs prompt a greater policy intervention to arrest the liquidity crisis. That will buy time for governments to address their long term solvency crises ultimately behind the current sovereign risk uncertainty.

As always, extend and pretend, while not one economist or politician has provided any answer to the real question that needs addressing: how will marginal treasury revenue, be it in Greece, in the EU, or in the US, increase in light of massive and neverending end-consumer deleveraging, and a bubble that is set to pop in China, taking away trillions in virtually free capital with it. Today the crisis just went global, yet we bought ourselves another 6 months of imaginary time in which the surface will be calm but ever greater disconnects between valuations and fiscal realities, not to mention monetary distortions, will develop, ultimately all resulting in an unraveling on a historic scale.

The conclusion is that Europe just took a sharp and dramatic turn for the worse (which, however, was in many ways unavoidable). Yet instead of going the American route of pretending that things will get better if just ignored for long enough, Europe had the option of determining its own fate and doing the right thing - which would have been to take the bitter pill of acknowledging the EMU failure, cutting weak peripheral countries loose and focusing on a new, solid European core, and not so much competing with the US in attempting to recreate a melting pot experiment of numerous completely non-compatible cultures and norms.

Below we present some pretty BAC charts which show how comparable liquidity crises played out in the past.

  • 1. In for a penny, in for a pound (or a Euro), February 8, 2010
 

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Tue, 02/09/2010 - 18:22 | 224126 cougar_w
cougar_w's picture

If they were thinking to kick the can down the road maybe that only works in the US, holder of the reserve currency.

Anybody else tries that and it's "teh flightz 2 safety" meaning USD.

The US might end up being the last one standing in a landscape of (figurative) finacial radioactive debris. Which is nothing much to crow about, notice.

Tue, 02/09/2010 - 18:47 | 224154 Anonymous
Anonymous's picture

That's intentional - he's implying that China is the only one who will be able to financing.

Tue, 02/09/2010 - 18:34 | 224138 Stevm30
Stevm30's picture

Only exit left: One world currency

http://www.youtube.com/watch?v=budGr3xgH-c

 

"It began with the forging of the great state issued fiat currencies...

Given to central bankers of each nation...

and within these currencies was given the strength and will to rule each country...

but they were deceived, for another currency was made...

the dark lord(s) forged, in secret, a master currency...

to control all others, and into this currency they poured their cruelty, their malice, and their will to dominate all life...

One currency to rule them all...

...history became legend, legend became myth...

One currency to rule them all, one currency to find them,
One currency to bring them all and in the darkness bind them.

Tue, 02/09/2010 - 18:44 | 224151 SteveNYC
SteveNYC's picture

Hahahaha!! Brilliant.

Tue, 02/09/2010 - 18:49 | 224157 dark pools of soros
dark pools of soros's picture

ummm Junior Mints?  is that it?

Tue, 02/09/2010 - 20:31 | 224265 Hephasteus
Hephasteus's picture

Skittles. The different colors denominate them. Favorite flavor becomes the most valuable. That way the odducks who like lime flavor can take advantage of the cherry herd.

Wed, 02/10/2010 - 02:22 | 224610 bonddude
bonddude's picture

I prefer a Charms lollipop and jujyfruits, thank you !

Tue, 02/09/2010 - 21:23 | 224325 Double down
Double down's picture

+100

Tue, 02/09/2010 - 19:05 | 224174 Anonymous
Anonymous's picture

The great worldwide debt unwinding continues. The unelected bureaucrats of the EU cannot stop the great debt deleveraging in the EU or the world.
There are only ultimately two scenarios, the EU (Germany) bails out Greece then they are asked to next to bailout Spain, Portugal, Ireland, Italy etc. This scenario would certainly end with Greece. The EU then tries to force Draconian economic budgets on the governments of Spain, Portugal, and Ireland etc. The populace of these nations revolt and say no and the governments of these countries then exit the EU and the EU unravels.
Or scenario two, which seems which has a 50/50 probability, Greece announces they are leaving the EU and defaults on their bonds and at some point in time the bond holders resolve to take a 90% haircut. Other countries like Spain, Portugal and Italy then follow suit and the EU again unravels.
The toothless EU politicians will announce economic tricks to extend the EU debt unravel but at best the charades last a few months. The worldwide debt crisis can’t be stopped with more gimmicks, the massive world debt will ultimately be resolved and it will be ugly and painful for much of humanity.

Wed, 02/10/2010 - 00:26 | 224505 David449420
David449420's picture

Let me suggest a third scenario. 

They collectively line every banker and most politicians up against the wall, expend a few dollars in copper & lead & then try to start over.

Do you think the rest of the world would catch on?

Great sigh. 

 

So, there's another pipe dream.

Wed, 02/10/2010 - 02:23 | 224612 bonddude
bonddude's picture

So mushrooming heads?

Wed, 02/10/2010 - 23:59 | 226183 Anonymous
Anonymous's picture

+10000000000 : )

Tue, 02/09/2010 - 19:07 | 224177 CB
CB's picture

I wonder what is promised to Germany to support the bail-out?

Tue, 02/09/2010 - 19:11 | 224182 cougar_w
cougar_w's picture

That's easy; they get to sell more Beemers to people who can't afford them.

Not even joking.

Tue, 02/09/2010 - 19:16 | 224186 CB
CB's picture

that is so dementedly true.

Tue, 02/09/2010 - 21:41 | 224346 DoChenRollingBearing
DoChenRollingBearing's picture

Doesn't matter what they promised Germany, they (Greece) will not comply.  Why should they?

They can swill Ouzo on the beach and wait on German tourists to trickle down when the weather warms up.  The rest of the PIIGS I'm sure are wising up fast, get some Euros from the Germans before THEY wise up and cut 'em off.

Can hardly wait for California, Illinois, New York, etc.

Wed, 02/10/2010 - 00:13 | 224497 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

right around the corner fell like im rollin in a '70 caddie....aw ah  aw   ah!!!

Wed, 02/10/2010 - 00:11 | 224494 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I have good credit.  I will buy a beamer.  Imma get it black....custom....with tinted windows,ima have it roll on 24s low low, ya no?  fresh system, speakers in the back itll get yer girl wet, yanowhatimean, shit............

Tue, 02/09/2010 - 20:22 | 224256 carbonmutant
carbonmutant's picture

What did the US government get for bailing out AIG?

Tue, 02/09/2010 - 21:52 | 224356 Squid-puppets a...
Squid-puppets a-go-go's picture

persistent and deserved criticism

Wed, 02/10/2010 - 02:25 | 224613 bonddude
bonddude's picture

You mean the United StAtes of g sax?

Tue, 02/09/2010 - 22:15 | 224369 CB
CB's picture

the status quo for now

Wed, 02/10/2010 - 07:43 | 224709 jeff montanye
jeff montanye's picture

taxpayer lawsuit against sharia compliant financing, of all things.

Tue, 02/09/2010 - 19:09 | 224180 zeroblue
zeroblue's picture

 

 

Instead of

"........Europe's decision to jettison monetary prudence at the expense of patching a crumbling fiscal dam......"

the writer meant to say

"......Europe's decision to patch a crumbling fiscal dam at the expense of jettisoning monetary prudence ...."

or is this a Freudian slip suggesting that jettisioning monetary prudence is what the author really wants.

 

 

Tue, 02/09/2010 - 19:44 | 224217 MsCreant
MsCreant's picture

I read that as "there are no good choices."

Wed, 02/10/2010 - 07:45 | 224710 jeff montanye
jeff montanye's picture

insightful.

Tue, 02/09/2010 - 19:25 | 224197 Anonymous
Anonymous's picture

Canada is the only country listed whose debt to gdp ratio actually falls out to 2014

Tue, 02/09/2010 - 19:53 | 224224 Astute Investor
Astute Investor's picture

Why do these fools (and the collective masses) think that guarantees have no economic cost?

As Mike Tyson once said:  "everyone has a plan until they get hit...."

Wed, 02/10/2010 - 10:06 | 224769 Commander Cody
Commander Cody's picture

Ah, the wisdom of Tyson.  He gets quoted quite a bit here.

Tue, 02/09/2010 - 20:04 | 224238 Missing_Link
Missing_Link's picture

It is sheer lunacy if the ECB and Germany believe that the guarantee program will not wreak havoc on their plans to quietly fund this massive hole.

It's your patriotic duty to throw money down the hole!

http://www.theonion.com/content/video/in_the_know_should_the_government

Tue, 02/09/2010 - 20:09 | 224241 Anonymous
Anonymous's picture

Interest / Income for Austria

max tax receipts 2010 60Bil Euros
interest expenditure c 8Bil Euros

nearly 14% of receipts is used for interest payments...

Tue, 02/09/2010 - 20:23 | 224257 Anonymous
Anonymous's picture

Greece aint gonna be the one to bring the big guns down. It will have to be the Big Bears UK, USA, Ja(pawn).

Tue, 02/09/2010 - 20:33 | 224268 glenlloyd
glenlloyd's picture

It's absolutely ridiculous that they're even considering this. The lessons learned as a child have never been more relevant.

If you always step in and save someone from doing the wrong thing they never learn from their mistakes. Main issue with the bailouts in the US.

If they bailout Greece then Greece will likely not implement the draconian measures needed to fix their problem, again, Greece won't learn from their errors and this will go on ad nauseum until the whole thing buckles under its own weight.

I simply don't understand why they aren't cut loose. At least then they would have some options for dealing with the problem at home. Now however, they're boxed in by eurozone policy, with the only way to achieve what they must is with super duper belt tightening.

You do what you have to do to make it, but that's not remotely what happens anymore. When the problems come people just go looking for a sugar daddy to fix everything.

disgusting....really, and they will regret this path before it's all over.

Tue, 02/09/2010 - 23:40 | 224454 Molon Labe
Molon Labe's picture

"...those who have forecast better than their fellows gain, while the poorer forecasters lose, as a result of their speculative transactions.  It is obvious that such monetary profits come not simply from correct forecasting, but from forecasting more correctly than other individuals. . . .  It should be clear that the gains or losses are the consequences of the freely undertaken action of the gainers and losers themselves. The man who has bought a good to rent out at what proves to be an excessive capital value has only himself to blame for being overly-optimistic about the monetary return on his investment.  The man who sells at a capital value higher than the eventual rental income is rewarded for his sagacity through decisions voluntarily taken by all parties.  And since successful forecasters are, in effect, rewarded, and poor ones penalized, and in proportion to good and poor judgment respectively, the market tends to establish and maintain as high a quality of forecasting as is humanly possible to achieve."  --  Murray N. Rothbard

Does anyone recognize the economic system Rothbard describes?  It must be some kind of bizzarro world where up is up and down is down.

Wed, 02/10/2010 - 01:00 | 224548 strike for retu...
strike for return to reality's picture

Pretty scary world.  Might be one were all the capital doesn't end up at Goldman Sachs.

Wed, 02/10/2010 - 03:34 | 224636 Quantum Noise
Quantum Noise's picture

Many countries including Greece defaulted quite a few times in their recent history... so no, the Greeks won't learn jack shit from this one either even if they're not getting any help.

Wed, 02/10/2010 - 06:56 | 224699 Anonymous
Anonymous's picture

It is not just the borrowers but the lenders who don't learn from history.

Maybe Niall Ferguson is on to something...

Wed, 02/10/2010 - 06:55 | 224698 Anonymous
Anonymous's picture

The bailout will probably not be in the form of loans or cash. My guess is a loan guarantee or similar.

Regardless, Portugal and Spain (and mebbe Italy and Belgium) will line up and say "where's my bailout?" All they gotta do is refuse to cut spending or get serious about tax collection, organize a few strikes and voila! Germany rides to the rescue!

Meanwhile, the Irish must wonder why they put themselves through such budgetary pain when all they had to do was ask and Uncle Merkel would make it all go away for now.

Tue, 02/09/2010 - 20:37 | 224280 trav7777
trav7777's picture

Scylla and Charybdis...whoever devalues first takes initial advantage.

These debt loads are all asinine and the surplus countries are dependent upon GROWTH in debt!  There's not enough natural demand to keep their excess factories idle NOW, much less in a deleveraging world

I mean, how much additional production do we need to layer another doubling onto this debt ponzi?  We've reached the end stage of the debt/growth pyramid

Tue, 02/09/2010 - 20:46 | 224286 Anonymous
Anonymous's picture

Funny to see such bias. When the USA has an internal problem of bankrupt states (pick your name), few seriously consider abandoning the union as a credible option to solve the crisis. When the EU has an internal problem of bankrupt states, the seriously advocated option is to abandon the union - or rather have the union cut loose the misbehaving family member.

I think some people need to re-read their history books: when a country in europe has been "more successful", standing next to a neighbor country in dire need, historically things have tended to end in a bloody mess, literally. It doesn't do much to promote peace among family siblings if the rich kick out the poor from the family house.

You can't have prosperity without peace...

Wed, 02/10/2010 - 04:33 | 224653 Anonymous
Anonymous's picture

Funny and unsurprising.
This is typical of a time when growth due to an ever increasingly environment can no longer meet the requirement of an ever increasing greed.

If China fails, in their downfall, they will release what is needed to support their society, easening the tension within the US society.

If the EU fails, in their downfall, they will achieve the same.

Nobody tells but it is how most analysis is driven: people fancy on eliminating a rival in the race for consuming the Earth resources. Squeezing the poorest no longer appease as it used to.

Once again, the European construction has cost a lot. Considering that all will be negated because of a small event is ludicrous. It is a last ditch effort.
More likely, the EU politicians are waiting for the hour to impose even more integration. The EU politicians are going to take advantage of the weakened situation of these nations to go to the next stage of integration.

A few months ago after their no vote to the Constitution, I talked with Irish people. They appeared to me delusional about their qualities as a people. My vision was the same as it is now: the EU politicians would wait for the hour to force their way. They maintained that no matter what the Irish would repell the treaty. They were neither the French or the Dutch. If the treaty was accepted, streets would be lighted by the fire of riots.
The rest of the story is well known.

Moral of this story: the EU will finish more integrated after this crisis. The whole question is how, under what form.

Wed, 02/10/2010 - 05:14 | 224664 drwells
drwells's picture

Oh, we'll end up facing the same dilemma here, don't worry. I have faith the federal government will bankrupt itself trying to keep states like Cali from sitting down to the banquet of consequences. Once it can no longer keep the game going, they'll simply default. At that point secession doesn't seem so farfetched, especially if the rest of the world tries to impose austerity measures on us in exchange for continuing to supply us with what we "deserve" and some states don't feel like going along with it.

Sounds unthinkable, I know, but so did the word "bubble" in 2006.

If you subscribe to Russ Winter, he's been following this theme (bankrupt US states vs bankrupt EU states) for the last several days.

Wed, 02/10/2010 - 10:49 | 224839 Anonymous
Anonymous's picture

To liken the EU model which has been in existence for less than 20 years to the USA model which has been intact for over 200 years and extrapolate results and assumptions from such a comparison is a giant stretch.

The USA has stayed together--and was even forcefully via military kept together during the civil war--for over 200 years. The union has been "battle" tested and it continues to endure time after time and crisis after crisis. Generation after generation of Americans have been raised to accept the cohesiveness of this union, and the culture and lifestyle here reflect the view of this cohesiveness.

The EU on the other hand has been together a measly 16 years. Its population and broad culture hardly shows the same loyalty and allegiance to the EU arrangement in the same manner Americans born in whatever state support the USA. Its sovereignty (if you want to call it that) has never been seriously tested (until now) and therefore no indicators exist today that the EU and its leadership has any demonstrable capacity to tackle this fiscal problem (and later social problem as a result) and be successful in doing so in the same way the USA has successfully in its history.

Wed, 02/10/2010 - 11:04 | 224856 Anonymous
Anonymous's picture

To liken the EU model which has been in existence for less than 20 years to the USA model which has been intact for over 200 years and extrapolate results and assumptions from such a comparison is a giant stretch.

The USA has stayed together--and was even forcefully via military kept together during the civil war--for over 200 years. The union has been "battle" tested and it continues to endure time after time and crisis after crisis. Generation after generation of Americans have been raised to accept the cohesiveness of this union, and the culture and lifestyle here reflect the view of this cohesiveness.

The EU on the other hand has been together a measly 16 years. Its population and broad culture hardly shows the same loyalty and allegiance to the EU arrangement in the same manner Americans born in whatever state support the USA. Its sovereignty (if you want to call it that) has never been seriously tested (until now) and therefore no indicators exist today that the EU and its leadership has any demonstrable capacity to tackle this fiscal problem (and later social problem as a result) and be successful in doing so in the same way the USA has successfully in its history.

Tue, 02/09/2010 - 20:50 | 224293 IveBeenHad
IveBeenHad's picture

can someone please explain to me how a country w/ a debt/gdp ratio of over 200% is consdered the worlds safest currency? 

i dont get it and i am talking about japann!!!! seriously why ? 

Tue, 02/09/2010 - 21:18 | 224318 Anonymous
Anonymous's picture

You meant to say "least dangerous". 95% of JGBs are sold to JPN indvs; few gaijin required. Little lambs dont go on strike, either.

Tue, 02/09/2010 - 22:26 | 224371 Anonymous
Anonymous's picture

Its been safe because their govt debt has in the past been bought by the bucketload by the locals.

Much less of their sovereign debt is owned by non-Japanese. So they are not as susceptible to a foreign buyers' strike - something which the US has huge exposure to.

As I understand it, Japan's problem is in its demographics, as this practice is not sustainable in the long term due to the aging population and reduced birth rates.

Wed, 02/10/2010 - 00:39 | 224525 chindit13
chindit13's picture

Japan is susceptible to a domestic buyers' strike, which in Japan will be typically non-confrontational. The strike will occur because of something you mentioned:  aging populace.  After a nearly two decades of near zero interest rates, retired folks---of which there are an increasingly large number---are dipping into savings.  The savings rate may well drop below zero in 2010.

At present, and with average JGB rates ultra low, the Japanese government pays out nearly 35% in total revenues just to service the debt. If rates were to climb to, say, 3.5% debt service would consume total government revenues.  Total revenues.  Just gotta love the yen, right market?

Even Pollyanna-san would be challenged to find a rosy scenario here, though no doubt there is one hiding in plain sight. 

Wed, 02/10/2010 - 03:29 | 224637 Quantum Noise
Quantum Noise's picture

can someone please explain to me how a country w/ a debt/gdp ratio of over 200% is consdered the worlds safest currency? 

i dont get it and i am talking about japann!!!! seriously why ?

 

Tiny penises.

Tue, 02/09/2010 - 21:03 | 224301 ghostfaceinvestah
ghostfaceinvestah's picture

The whole concept of the euro was flawed from the beginning, it won't last much longer.

Tue, 02/09/2010 - 21:12 | 224312 illyia
illyia's picture

TD -

You should get an award for this article.

 

Tue, 02/09/2010 - 21:29 | 224333 Anonymous
Anonymous's picture

+ 500

Brilliant, spot-on piece from Zero Hedge.

Saying this from Brussels, where many EU officials would not dare consider the truth that may be in what 'Tyler Durden' writes, when he says:

« Europe had the option of determining its own fate and doing the right thing - which would have been to take the bitter pill of acknowledging the EMU failure, cutting weak peripheral countries loose and focusing on a new, solid European core »

Wed, 02/10/2010 - 01:01 | 224549 Yardfarmer
Yardfarmer's picture

Outright flaming brilliance on a consistent basis. Remarkable stuff.

Tue, 02/09/2010 - 21:40 | 224344 Going Down
Going Down's picture

 

*External* Debt to GDP

 

Yet unlike Greece, which has a GDP of EUR $261 billion, Spain's is EUR 1.134 trillion and Italy's EUR 1.406 trillion.  Portugal and Ireland's economies are smaller, but they belie big problems, with the "best" indication being the external debt to GDP ratio.

Italy's is 127% (the US is running close to 100% at present), while Greece's is 161%.  Spain's, on the other hand, is 171%.  Germany, for all of its vaunted "strength", runs 178% of GDP, Portugal is at 214% and Ireland is running an unbelievable 1267%.

That's right - tiny Ireland with EUR 144 billion in GDP has well north of a trillion Euros outstanding in external debt.  This, by the way, makes clear that debt service is likely compounding upon itself even now, which is a death spiral from which one cannot escape - whether it is being recognized or not.

Oh, and don't look at Great Britain as a bastion of "fiscal responsibility" - they're over 400% - nor the Swiss, at 423%.

 

http://market-ticker.denninger.net/archives/1950-Is-That-A-Bailout-Or-A-...

Tue, 02/09/2010 - 22:46 | 224392 THE DORK OF CORK
THE DORK OF CORK's picture

I believe that one third of all hedge funds in the world are based in the IFSC buildings in Dublin  ( open to correction) and this could explain the bulk of the anomaly - once the Irish government does not guarantee these buccaneers we have no liability

See no evil hear no evil I guess.

This explains the enormous amounts of US treasuries running through the states jurisdiction every month as reported on Zero Hedge which are larger then the reported French holdings.

Hedge funds at least have the good grace not to come for bailouts when they loose.

Tue, 02/09/2010 - 23:30 | 224440 dark pools of soros
dark pools of soros's picture

they could raise the price of scotch ten fold!!

Wed, 02/10/2010 - 04:50 | 224660 Anonymous
Anonymous's picture

Great link...downright frightening. The whole house of fiat money cards is coming, just a matter of order at this point. Gotta keep reminding myself of the Biblical admonition to 'let not thy heart be troubled, nor afraid'...

Tue, 02/09/2010 - 21:42 | 224349 Youri Carma
Youri Carma's picture

Well Europe can do the same as Geithner did. Create some "independent" financial vehicles, station them on the Caymans and let them buy up all the notes and bonds like Indirect bidders. Nobody will notice, at least not on the short term.

Indirect bidders bought 51.2%, compared to an average of 54.1% - 9 February 2010 (MarketWatch) http://www.marketwatch.com/story/treasury-sells-40-bln-in-3-year-debt-at-1377-2010-02-09-138430

Tue, 02/09/2010 - 21:53 | 224358 Anonymous
Anonymous's picture

And if Germany does "the right thing" and cuts the "peripherals" loose, what shall be with the massive loans extended by the banks of the "core" countries to their "southern" neighbors?

Tue, 02/09/2010 - 23:14 | 224418 Crab Cake
Crab Cake's picture

So goes Iceland, so goes the world. 

Wed, 02/10/2010 - 02:27 | 224615 bonddude
bonddude's picture

I knew that bitch Bjork was spending beyond her means.

Tue, 02/09/2010 - 23:15 | 224421 Anonymous
Anonymous's picture

We should start counting how many times ZH cries wolf per month.

Wed, 02/10/2010 - 02:30 | 224618 bonddude
bonddude's picture

well you are right as to market averages but Biederman who has been wrong badly for the first time in his career said he doesn't know who could be buying but the gov. or surrogates

(s&p500 futures forcing the market up/.

Wed, 02/10/2010 - 00:08 | 224486 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"It is about time for a new game children!"  The man walked with a limp and smiled with a bluffers grin.  

"What is it?" asked a young girl.

"We call this one, 'Who has the Gold!'"

"how do we play?" asked a squirrelly kid with glasses.

He was then run over by the largest boy on the field.

"Whoever is left with the gold wins!  I got your gold!"  The big boy ran off.

 

Wed, 02/10/2010 - 00:18 | 224502 chindit13
chindit13's picture

There are going to be millions of babies all over the world who scream out from their mothers' wombs, "Look, I'm just not coming out!"

Wed, 02/10/2010 - 01:15 | 224562 Going Down
Going Down's picture

 

Hey...What's That Sound, Everybody Look What's Going Down

 

Feb. 10 (Bloomberg) -- Prime Minister George Papandreou’s drive to get Greece’s ballooning budget under control will be challenged in the streets today as striking labor unions shut down schools, hospitals and flights.

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNpDJ7VRgkUE&pos=9

 

 

Wed, 02/10/2010 - 01:33 | 224571 Stranger
Stranger's picture

Sounds like another Argentina in the making.

Wed, 02/10/2010 - 01:46 | 224580 tom a taxpayer
tom a taxpayer's picture

Will the EU weasels in Brussels on Feb 11 be able to withstand the barrage from Greek labor unions striking on Feb 10? Time will tell.

Wed, 02/10/2010 - 02:00 | 224589 Going Down
Going Down's picture

 

"What's that sound..." are the lyrics from the song "For What It's Worth" by Buffalo Springfield (Neil Young and Stephen Stills).

 

http://www.youtube.com/watch?v=hKHrxmxeRxU

 

 

Wed, 02/10/2010 - 01:35 | 224573 fedusw (not verified)
fedusw's picture

I agree we are on the precipice of something really bad Dougle Dip Recession? Experts Say Yes

Wed, 02/10/2010 - 01:45 | 224577 fedusw (not verified)
Wed, 02/10/2010 - 02:06 | 224596 Anonymous
Anonymous's picture

Folks, it makes sense. A ECB (Germany) led bailout will be enforced and contained by Defense Minister, Guttenberg, therefore propelling Germany into the financial and military leader of Europe. It is not about money as much as it is about Germany now ready to pay dearly with an outcome as the leader of Europe. Germany will jump onto the world scene in military matters and diplmotatic issues. The EU will remain intact but with a leader group of the 27, TBD, dictating to a follower group. Again, Germany will be the leader of them all.

Wed, 02/10/2010 - 02:08 | 224600 Anonymous
Anonymous's picture

Folks, it makes sense. A ECB (Germany) led bailout will be enforced and contained by Defense Minister, Guttenberg, therefore propelling Germany into the financial and military leader of Europe. It is not about money as much as it is about Germany now ready to pay dearly with an outcome as the leader of Europe. Germany will jump onto the world scene in military matters and diplmotatic issues. The EU will remain intact but with a leader group of the 27, TBD, dictating to a follower group. Again, Germany will be the leader of them all.

Wed, 02/10/2010 - 02:27 | 224614 babbs
babbs's picture

A fun headline from Spiegel Online:

How Goldman Sachs Helped Greece to Mask its True Debt (02/08/2010)

A quick read at http://www.spiegel.de/international/europe/0,1518,676634,00.html#ref=nlint

Wed, 02/10/2010 - 03:04 | 224628 Black Swan
Black Swan's picture

I would like to pose a question.

Q; If the EU and associated euro currency suffers going forward as a result of this latest blunder then how do you think this will effect the GBP-USD cross. Will it favor the cable or do you think the cable will suffer as a result???????

Wed, 02/10/2010 - 03:55 | 224641 Anonymous
Anonymous's picture

I can see that my lovely homeland, Finland, has done pretty well. Although we have problems of our own it's clear that we are in company of much worse performers. Yes, we are the nation which always follows the directives by heart let's be honest and peaceful so all can prosper hallelujah and amen, and in the end is always the realization that almost no one else does. Fuck you.

Wed, 02/10/2010 - 10:17 | 224782 Commander Cody
Commander Cody's picture

Fuck yourself.

Wed, 02/10/2010 - 04:27 | 224651 Simple
Simple's picture

lets immigrate to canada then...

Wed, 02/10/2010 - 05:42 | 224670 Anonymous
Anonymous's picture

I am sorry to say this article is grossly inaccurate.
Just to mention: the EU advanced economies include the UK and do NOT include Iceland, which does not belong to the EU.
Maybe reference was meant to be about Euroland (the usual way Euro adopting countries are nicknamed), but still Iceland does not belong to the pack.
If these are the assumptions, on which the reasoning is based, the post is not worth reading at all.
I used to think this was a sensible blog. I now believe it is just a bunch of biased views.

Wed, 02/10/2010 - 06:35 | 224689 Anonymous
Anonymous's picture

So, according to Bank of America we can conclude
- Iceland is an advanced EU economy, and
- Denmark and Sweden do not belong to the advanced EU economies.

No wonder US banks went belly-up.

Wed, 02/10/2010 - 06:45 | 224691 godfader
godfader's picture

Let's annex Canada. Now that'd be much more interesting.

Wed, 02/10/2010 - 06:53 | 224696 Anonymous
Anonymous's picture

Hi Tyler:

In the first picture it says: "EU - Advanced Economies...Iceland" but, to be correct, Iceland is in fact no member of the EU at all, what makes this grafic look a whole lot better for the EU.

Greetings from Germany

Wed, 02/10/2010 - 08:25 | 224716 Simple
Simple's picture

saving the piigs during *swine* flu?!?! 'nice' strategy...

Wed, 02/10/2010 - 08:33 | 224718 Anonymous
Anonymous's picture

It would be interesting to combine this analysis with debt maturities of companies from the private sector. My guess is that we will see that the total amount of debt Spain will have to raise to be much higher than only looking at the public sector.

With Spain's deep economic recession, I would interprete that as massive corporate defaults from Spanish companies later in the year.

Wed, 02/10/2010 - 09:12 | 224732 Anonymous
Anonymous's picture

Nothing is imminent when Germany is making the call..could take weeks...oh lookie here..another report saying bilateral aid is not planned....futures drop a quick 6 pts

Wed, 02/10/2010 - 09:13 | 224733 Highrev
Highrev's picture

Great article and great comments!

Looks like maybe the "bet" against the EU is better than I previously thought. That would be a bet on financial breakdown, not on the break-up of the EU. I don't think they're that stupid. Too many trillions have already been invested. They'll take their lumps and continue moving forward. There's just too much to lose by throwing in the towel. As one poster pointed out:

"I think some people need to re-read their history books: when a country in europe has been "more successful", standing next to a neighbor country in dire need, historically things have tended to end in a bloody mess, literally. It doesn't do much to promote peace among family siblings if the rich kick out the poor from the family house.

You can't have prosperity without peace..."

And the Europeans know that all too well.

Wed, 02/10/2010 - 10:02 | 224762 Anonymous
Anonymous's picture

a few comments that should be taken into account in your analysis :

there is no consumer deleveradging to do in the EMU zone since structurally EMU people have saved more than spent for decades. The outcome is that the consumer role is not as important for EMU economies as it can be for the UK or US. Such savings are as well mainly invested in bonds (equity investments are very low in Europe) which makes that the funding of the government debt is not that problematic. There is no chinese effect to deal with in the European govies market.

the debt amounts stated here include state pension costs (since in Europe a big share of pensions are state-sponsored). Try to figure out if you had to add this to the US or UK debt levels...

Culturally speaking there is not a bigger difference between finland and portugal than between california and mississipi.

There is indeed a crisis in the EMU zone mainly coming from fake statistics (seems Greece and the US have that in common) but apart from making the headlines of newspapers and creating volatility all that is highly overstated. I'm not saying there is no problem in the EU, but that these are far less dramatic than elsewhere.

by the way, iceland is not part of the EU

Wed, 02/10/2010 - 13:21 | 225097 Anonymous
Anonymous's picture

I concur as a local informed EU-core citizen.

Wed, 02/17/2010 - 05:09 | 233734 Simple
Simple's picture

Maaaan, Icelad is in big mothaf***** trouble since they owe UK and NL.. so financially they r in the EU... dont worry soon UK and all other Scandis will merge ... the question is: will the merge in Eurozone!??!? or another currency?!

Wed, 02/24/2010 - 23:47 | 244472 Anonymous
Anonymous's picture

Referencing someones earlier comments (# 224856) comparing the EU model to the US model, my question is this; how can you?

The EU is not a federal or even confederational union, as a lot of people tend to think.

It is a supranational organisation, and cannot be compared to anything else as it is unlike anything else.

The US states are subordinate to a central federal government, whereas the EU states are individual, sovereign countries.

Being a resident of the EU (UK), although not a euro user, I hope the EU does not fall apart, as although someone said that our cultures are 'non compatible' (I can bet you monetary amounts the size of Greece's debt that person is American, and is thinking 'because they don't all speak the same language' or something stupid, however I could be wrong) they very much are, although a lot of Europeans do not realise it.

So long live the Union!

Mon, 04/19/2010 - 10:40 | 307923 Tom123456
Tom123456's picture

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sun's picture

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