The Greek Bailout's Two Secret Exit Clauses: Why Europe Is Now Cheering For Its Own Demise

Tyler Durden's picture

When all of Europe rushed into its rescue package two weeks ago (first half a trillion, market red, then a full trillion, market green), the one thing that struck us as odd was the conflicting data on the conditionality of the package, with various sources both confirming and denying that the "package" was revocable. It did seem somewhat shortsighted of the Germans, whose political leadership would soon be on the verge of a series of electoral routs, to tie its fate without even one exit hatch, to a country that is a financial toxic spiral. Sure enough, the Telegraph's Evans-Pritchard has uncovered what may be the two loopholes in the European bailout agreement. While the first one is not surprising, the second one explains why the biggest sellers of European government debt (and/or buyers of Euro sovereign CDS), are likely the governments of the distressed, and core, countries themselves.

Markets have been rattled by reports in the German media that the Greek rescue deal contains two secret clauses. The package will be "immediately and irrevocably cancelled" if it is found to breach the EU Treaty's "no bail-out" clause, either in a ruling by the European court or the constitutional courts of any eurozone state. While such an event is unlikely, it is not impossible. There are two cases already pending at Germany's top court in Karlsruhe, perhaps Europe's most "eurosceptic" tribunal.

The second clause said that if any country finds it cannot raise funding for the rescue at interest rates below the 5pc charge agreed for Greece, it may opt out of the bail-out. BNP Paribas said this would escalate quickly into a systemic crisis if Spain were in such a position, because the other countries cannot carry an ever-rising burden. The bank warned the euro project itself may start to disintegrate rapidly if these rescue provisions are ever seriously put to the test.

The second clause is particularly troubling: since most European countries will soon see massive hits to their GDP, resulting in inevitable spikes in borrowing costs, this becomes yet another example of a game theory arrangement where the benefit to the first defector is far greater than any dowside, with the last to defect left holding the bag on what would basically become a bail out of all of Europe. Many have wondered how arguably intelligent people could come up with a rescue package of Greece in which Greece itself is supposed to contribute to its own bailout. Now we know that this was the ploy all along. The second Portugal, Spain and Italy are dragged under by the vigilantes, their participation in the $1 trillion bailout ends. And when that happens, the full cost of the bailout will be borne by none other than the "richest" member of the IMF, the United States. Obviously, the incentive to blow up one's borrowing costs in this arrangement are huge, now that both Germany and the US have no choice but to bail out each and every dropping domino. Which is why we are confident that in the very short term we will see credit spreads of the PIIGS blowing out yet again, and in the medium-term, some diligent reporter will get an anonymous tip that the biggest buyers of Spanish CDS are Santander and BBVA, the biggest buyers of Italy CDS are UniCredit and Intesa SanPaolo, the biggest buyers of UK CDS is Barclays (RBS still has to figure out how to sell its Greek bonds, let alone how to trade CDS), etc.

The bottom line is that all of Europe is now incentivized to blow itself up, and it doesn't even have to put too much effort into it. All the borderline European countries have to do is raise their funding costs to above 5%: this is mere basis points away from where most are trading already. After all the US has no option but to bail them out: Bernanke has made it clear that his Wall Street bosses will not allow their European colleagues to be dragged down by something as trivial as total insolvency, which in turn would uncover just how bankrupt our own financial system is. These are the perverse incentives in what is now officially known as farcist capitalism.

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Crab Cake's picture
R.E.M. - It's The End Of The World As We Know It

MrTrader's picture

I will contribute some sort of facts to the Greek situation. Let's take a look at the lastest Bank of Greece ( central bank ) household and corporate deposits ( domestic residents ) :

227.355 million EUROs or in other words 227,35 billion EUROs. Question : Why has the world to bail out the RICH Greeks ???????

Karston1234's picture

This was really a very interesting article that I really do appreciate.
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Apostate's picture

More apropos of the impending mass-death of the Eurocratic vampire clans:

Bauhaus - Bela Lugosi's Dead

White on white translucent black capes
Back on the rack
Bela Lugosi's dead
The bats have left the bell tower
The victims have been bled
Red velvet lines the black box
Bela Lugosi's dead
Undead undead undead
The virginal brides file past his tomb
Strewn with time's dead flowers
Bereft in deathly bloom
Alone in a darkened room
The count
Bela Logosi's dead
Undead undead undead

Mr Lennon Hendrix's picture

"The bottom line is that all of Europe is now incentivized to blow itself up, and it doesn't even have to put too much effort into it."


You are absolutely correct.

So, how does this go now?  Does Europe want a strong dollar for this to work?  Or will the added cost of bailing out the WORLD weaken the dollar?  And what will equities do with America as dead man walking?  Either way, the sky is the limit for gold.

PS, ZH IS a life saving device.  Use accordingly.

nuinut's picture

Who gives a shit?

You got ya gold haven't ya?

The view sure is good from here, pass the popcorn, eh?

Mr Lennon Hendrix's picture

I do.


The view....well, I would rather not watch my people succumb to the tyranny of a tiny few, so, hold the popcorn, I will be back in a minute.

nuinut's picture

Maybe I was a little callous; I do care that people will get hurt, but that has been inevitable for quite some time. I have made a concerted effort to alert others, as have many here no doubt, with some modest success.

I would very much like the inevitable to get underway, so we can get to the task of rebuilding a fairer future asap.

Bringin It's picture

nuinut - I agree, it's difficult.  My advise is don't look back.  Remember Lott's wife.

chumbawamba's picture

Some people just will not listen.  You can't help someone unless they are willing to help themselves.  You can lead an investor to a coin shop, but you can't make them buy.

But you must try.

I am Chumbawamba.

UncleFurker's picture


>You can lead an investor to a coin shop

Unless they refuse to leave the house because Dancing with the Stars is on.


doublethink's picture


Here Comes The Calvary


Rothschild plan would see privatization of Britain’s massive public motorway


Apostate's picture

This is coming to the US as well, of course. It's already here in some parts.

The media is more concerned about covering Justin Bieber than anything real.

The public debts are invalid. These coming auctions are going to be overly opaque.

"nstead of drawing the tolls directly from motorists pocketbooks, the firms would draw up formulas that estimate the total number of drivers, which the government would then pay for in regular increments. Critics call the idea a "shadow toll," though it is seen as preferential compared to building new toll roads and electronic payment systems. The so-called "shadow toll" would also appear to be a possible route for deflecting the full brunt of an almost-certain public backlash."

This is wretched. That's not a true privatization.

faustian bargain's picture

It's fascization. Fascistization?

MsCreant's picture

Justin Bieber? Who is that? Don't bother, I will google.

AnAnonymous's picture

Why is it not true privatization? They own the stuff. They way they exploit it is theirs.


Always interested in knowing the rationale behind statements like not true privatization.

Mr Lennon Hendrix's picture

Hmmm...who are these Rothschildes you speak of?  Let me get some books...

OK, old banking family from the 18th century....changed name to Red Shield, well thats odd, why would anyone change their name?....anywho....chartered the first Banking Houses of Brittain, France, Italy, Germany, Austria; wow the major States!....COat of arms is the same as the coat of arms for Brittania, how ironic....Created many many many currency collapses over the centuries.....collapsed London by claiming Brittish defeat at the hands of Napoleon, and then bought up all assets at pence on the pound; well that wasn't nice!....intermarried until the 20th century, weird....founded LBMA.....ducked out of banking in the 80's except for their shares in Barclays; doesn't Barclays own ishares silver trust, the worlds largest silver reserve? they want to privatize infrostructure huh?  Well upon reading "The House of Rothschilde: The World's Banker" by Nigel Fergeson, I am not surprised!

Howard_Beale's picture

LH, my friend, the book was written by Naill Ferguson. Just a little typo and I won't comment on the rest....Brittish, British, Tomatoe, Tomato. Sweet dreams.

TJW's picture

Here Comes The Calvary

Now THAT is funny. Dark humor, I admit. But funny.

web dizajn's picture

oh no, not the Rothschilds again! web dizajn

Gimp's picture

Ladies and Gentlemen start your printing presses!

Matto's picture

Burn baby, burn.

Me XMan's picture

Benny fucking us again???

Mr Lennon Hendrix's picture

Yeah, he had to readjust and relube.

nuinut's picture

Maybe you're just getting numbed to it.

Mr Lennon Hendrix's picture

Oh for real?  Naw, BS is doin a corpse if you want to get into it.  Necro Ben nuinut, necro ben.

knukles's picture


I'd been thinking of the 3 Stooges, but NecroBen takes the cake.  WS and DC Rapes and Kills 'em and NecroBen tosses the corpse.

Oh, and Barney gets to Chair the Committee for the Ultimate Redesign of the Financial System.  Somehow being in Good Hands with the State does not here compute.

Can anybody please address the Disease rather than the Symptoms; the very Wall Street and sycophant Business Models and their Cheering Section amongst the Law Givers? 

SecretGoldfish's picture

lube?  hell, ben ain't even gonna spit on it.

doublethink's picture




The turbulence in financial markets in the last couple of weeks has been ascribed by reporters to doubts about the long-term stability of the euro, and concern over the finances of southern European countries. This is over-optimistic. Whether or not the current market downdraft proves temporary, monetary and fiscal policies in the United States and worldwide have been excessively stimulative since the September 2008 market meltdown. Thus we are at some point in the near future going to suffer the second Bernanke crash.


DoChenRollingBearing's picture

I need to find some better pills, it seems like things are getting worse even faster than I had thought.  My bottle of Absinthe is half gone too.

There in Europe, here in America.  Yes, the Rothschilds might do very well out of all this.  And whoever their lapdogs are here.

Mr Lennon Hendrix's picture

Find a grower, ask for the leaves, make butter.  That will make you remember your days sippin' absinthe in a flash. 

Rothschildes are banking on this.  And they, my friend, have ALL of their assets in gold and silver...for real.

AnXmarine's picture

Try Soma, it's got all of the advantages of Christianity and alcohol with none of their defects.  Afterall, one cubic centimeter cures ten gloomy sentiments! You can take Soma when you have all those dreadful ideas and you'd forget all about them. Then, instead of feeling miserable, you'd be jolly. So jolly!  

Mr Lennon Hendrix's picture

Ok, and Kava is cool too.  I like drinking kava tea from Yogi Tea.  That will knock you right out.

DoChenRollingBearing's picture

I have perhaps carisprodol, but perhaps not enough.  I can take advantage of that soon.  Maybe buy soma at the rate I buy gold.

MaximumPig's picture

Absinthe half full! be optimistic! lol

brushfire's picture

this is perhaps the most important article i've ever come across on ZH, and that is reallly saying something. truly, im speechless. if this is true, gold

Nihilarian's picture

You put your hand up on my hip, when I dip, you dip, we dip.

silvertrain's picture

you put yours , and I put mine 

and we can dip down low and roll and grind 

Turd Ferguson's picture

You know, all of this has been to buy time. 

The Fed, Congress and the WH all know that we're fucked if the economy (tax receipts) doesn't recover fast enough to manage the debt. They enlisted CNBC to pump their propoganda of MOPE. They gave billions to GS and JPM to form the PPT that buys SPY anytime the market looks dicey. They all hoped they could buy time thru pretend&extend and that it all might work out in the end.

Sadly, as it always does, events are beginning to rapidly spin out of control. Where Benny and B'rock thought they were buying time until 2012-14, they only made it to now. Its like a nuclear reaction. Once started, it cannot be contained and the speed of burn only accelerates.

The American Idiot has no clue what is coming. He/she is just trying to make ends meet. Make the mortgage. Educate the kids. Save a little for retirement. But the end is near. The only America we've ever known, the post WW2 America, is passing away. 

What emerges on the other side is anybody's guess. A hungry and scared electorate will trade almost any and all freedoms for the "hope" of prosperity and safety regained. My best guess is some form of fascism, a TBTF corporatist/statist fascist semi-police state. 

This could have been prevented. No. I take that back. I'm not sure it could have been prevented. Once the US decided, as the sole provider of the global reserve currency, to take it upon ourselves to issue unlimited amounts of fiat and debt, the jig was up. The forty years it took for the end to begin seems like a logical amount of time.

At any rate, this will all soon be over. The final tipping point, our generation's Arch Duke Ferdinand, will soon be upon us. My prayers are for my family and friends and all of you hear at ZH.