Three Data Points That Prove Europe Cannot Be Saved

Phoenix Capital Research's picture

I continue to see articles in the media claiming that Europe’s problems are solved. Either the folks writing these articles can’t do simple math, or they don’t bother actually reading any of the political news coming out of Europe.


Here are three data points that GUARANTEE Europe will collapse at some point in the near future:


Fact #1: EU Banks as a whole are leveraged at 26 to1.


This is, of course, based on the assets the banks are reporting. According to independent sources, the leverage levels are in fact far, far greater than this (though 26 to 1 is already bordering on Lehman Brothers’ leverage levels).


Indeed, as far back as September 2011, PIMCO’s Co-CIO, Mohamed El-Erian (one of the most connected of the financial elite) noted that French Banks were running REAL leverage levels of almost 100-to-1.


El-Erian said French banks are a particular cause for concern, noting that "credit markets now put their risk of default at levels indicative of a BB rating, which is fundamentally inconsistent with sound banking operations." He adds that bank equity now trades at a 50% discount to tangible book value on average, while the ratio of market capital to total assets has fallen to 1%-1.5%, compared with 6%-8% for "healthier banks."


So the “official” leverage level of 26 to 1 is definitely much, much lower than the REAL leverage levels. And we all know how massively high leverage levels go: see the 2008 collapse.


Fact #2: One Quarter of the ECB’s balance sheet is PIIGS debt


As part of its moves to “save the system” the ECB has gorged on PIIGS debt. Today, one quarter of the ECB’s balance sheet is PIIGS debt. Care to take a guess at what these assets are valued at? I guarantee it’s nothing near their real market values.


The ECB managed to swap out its Greece debt into new debt that would not take a hit should Greece default. But it won’t be able to do this with the remainder of its PIIGS’ debts. Indeed, it’s not even going to try. Instead, the ECB plans on shifting any of the losses from these debts onto the individual EU national banks:


ECB Balance Sheet Jumps Above €3 Trillion

The mix of bond purchases and loans has exposed the ECB and the 17 national central banks that make up the euro to losses in the event of defaults or bank failures. Last month, the ECB was forced to swap its €50 billion Greek bond portfolio for new bonds to shield the banks from potential losses in the event of any forced write-­?downs.


If banks that have borrowed from the ECB can't pay the money back and the collateral they have posted falls in value or becomes worthless, the ECB would be on the hook for losses. Most of these losses would be spread across national central banks according to their size, meaning Germany's Bundesbank would face the largest exposure.


So the ECB goes over Germany’s head to gorge on garbage debts from the PIIGS… and then decides that should these debts prove worthless, it’s Germany’s problem. What could possibly go wrong here?


Hint: Germany bails on the Euro (don’t think it can’t: see here)


Indeed, Germany has already put up a firewall that would allow it to walk on the Euro at any point. Obviously it doesn’t want to, but when the ECB tries to shift the losses from its PIIGS exposure (this will happen and they will be MASSIVE losses) onto Germany’s shoulders, Germany will have no choice.


Fact #3: Even after all of its inteventions and purchases, the ECB is far too small to contain this mess (ditto for the Fed)


Have a look at the following chart and tell me that the ECB or Fed could contain this mess.



I know many of you are thinking “the ECB or Fed could just print money.” That answer is wrong. If the ECB chooses to do this, Germany will walk. End of story. They’ve already seen how rampant monetization works out (Weimar).


And if the Fed chooses to monetize everything to hold things up, then the US Dollar collapses, inflation erupts creating civil unrest, interest rates rise killing the banks, US corporations and the US economy… all during an election year.


Good luck with that.


Remember, the Fed’s QE 2 program which was a mere $600 billion (to bail out Europe the Fed would need at the minimum $2 trillion) pushed food prices to all time highs and kicked off riots and revolutions around the globe. Imagine what $2+ trillion would do.


Again, Europe cannot be saved. It’s too big and too leveraged. End of story. The collapse will come and when it does the Central Banks will not be able to contain it.


If you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.


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Best of all, this report is 100% FREE. To pick up your copy today simply go to: and click on the OUR FREE REPORTS tab.


Good Investing!


Graham Summers


PS. We also feature four other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s my proprietary Crash Indicator which has caught every crash in the last 25 years, or how to stockpile food (where to get it, what to buy, and how to store it) our reports cover this information in great detail.


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FlyPaper's picture

OY!   Anyone that says "Germany will walk" is and assumption that cannot be proven.  I made this mistake last year when I thought "no way will the Germans let the ECB print Euros out their butts" - but was I wrong!   LTRO 1 and 2, and nary a peep from the Germans (grinding of teeth maybe)...

Who the hell knows?   Every time ZERO contributors have suggested Armageddon, it doesn't happen.  Until it does.  System is too complex to guess; and "normal rules" have been tossed by the powers-at-be.

Who-duh thunk the market would melt-up in the face of the European/Greek disaster with low volumes?  


Reese Bobby's picture

I wish you well but also wish you would move on from ZH.  Of course I've been saying that ever since you got the right to post here for $$$.  At least come up with something/anything original to say, please.  "I dropped acid and am scared of money now," would be so much better.  I would know you are 3 decades behind most of us, but at least i would respect you.

exartizo's picture

ummm.... sorry to disappoint you here Graham... but most ZHer's have known what you're saying for quite awhile now... so you are singing to the choir here, so to speak.



Curt W's picture

What can the US government do,

If 100 Million americans suddenly say, you are blowing the money on crap,

and I won't pay for it anymore.  On your w-4 claim 10 dependents, zero

with-holding, and refuse to file tax returns.

The second civil war will be Americans refusing to pay taxes till this corrupt government collapses under it own weight

skepticCarl's picture

We've heard that "end of story" and "game over" cliche a few too many times.  It's never over for those who make the rules.

steve from virginia's picture


Germany is unable to pay for the debts that are taken on in its name.

The ECB can creditise (the term monetize is vague and suggests an increase in currency). By creditising, the bank can wipe out debts-sans-liabilities such as Europe's dead-money fuel debts. Ok, the auto industry collapses (hint, it already is!) OR:

The Europeans can simply repudiate the unpayable, unserviceable debts and leave others to pick up the pieces. (This is most likely, unfortunately.) OR:

The Europeans can create a fiscal agency, fund it with a fuel use fee (Five Hundred Euros Per Barrel of Imported Fuel) and issue new bonds to retire the individual nations' debt. This borrows time and the fuel fee reduces if not eliminates the foreign exchange drain that is ruining the Continent.

Time has run out, there is almost no maneuvering room to avoid calamity.


theprofromdover's picture

I don't know how France stays afloat. They are as dirt poor as the UK for natural resources, except the UK was saved in the 70's with North Sea Oil. Same huge public sector and ridiculous agriculture subsidies. France maybe put in a little effort to modernise, but otherwise they must have been printing money non-stop (even after the Euro launch).

How on earth are they going to fess up?

true brain's picture

Bravo! Concise analysis with few numbers and pithy conclusion. No need to go on verbosely with the obvious.

Conclusion: We're all screwed, or 'many live but few will survive' sounds about right.

Eric L. Prentis's picture

Graham Summers, wonderful analysis and insight on European banking.

What are your thoughts on the JOBS Act just passed by the US Senate and expected to be signed by President Obama? Are investors being set up for more fraudulent looting of their accounts, like MF Global?

The Reich's picture

Unfortunately, this idea is not practicable: The German executive authority won't walk, and thus their sheeples won't do it either. 

Vince Clortho's picture

Printing solves the problems, ... until it doesn't.

The Con game, the printing, will continue until there is a grass roots level revolt.

Until then, the insanity continues.

After the people rise up, chaos.

Then a new beginning.

mp95bravo11208's picture

They will kick the can down the road a little more.  With Obama's help and our money that we borrow or print the Europeans have secret billions thrown at them that we only find out about as we all here know, years later. They can kick the can down the road at least until Obama gets re-installed and then he can let it all collapse.  Then the change is upon us. 

ChitownTrader's picture


Germany LOVES the devalued currency their entire economy is EXPORTS DUH!!! Pheonix seems to have the worst economists they could hire.

Plus, Germany is buying up all of the debt at HIGHEST yield EVER!

blunderdog's picture

Hasn't the recent Greek epic demonstrated that the derivatives never actually need to be paid?

mind_imminst's picture

Maybe Germany walks. The FED and ECB will still print, print, print, print, print. It is fait acompli. The central banks will destroy wealth until there is a peaceful or violent revolution.

lasvegaspersona's picture

So draw a picture of what Europe collapsing looks like....does the Euro still function? Does the Economy slow down or do we see societal collapse?

It seems so many bad things have already happened there we might miss a mere 'further worsening'.

metastar's picture

The Germans will not walk. They will march.

RafterManFMJ's picture



The German Infantry is unionized. No kidding! They have outmoded equipment, and incredibly large fixed costs for payroll and bennies.  They may march, but simply because they don't have transport.  

Benjamin Glutton's picture

It has been an awfully long time since British tanks rumbled their way across Europe towards the Rhine – 67 years, in fact.

So the Germans will be intrigued to learn the Ministry of Defence is plotting another push east, albeit an unconventional one that has been forced on it by budget cuts.

Thousands of the British military's tanks, carriers and cars will head across the Channel because of MoD plans to sell off its vast complex at Ashchurch in Gloucestershire. This is where it stores or repairs up to 6,000 vehicles, ready for duty.

The problem of where to put them all when the 72-hectare (178-acre) site is sold has been troubling military planners, who have plumped for Mönchengladbach in western Germany. The city in North-Rhine Westphalia is home to the British-owned Ayrshire barracks.

Whitehall sources hope that moving tanks and other heavy vehicles to Germany will be only a temporary measure, buying time for the MoD to find a more permanent home for them in the UK.

But while the idea might be practical on some levels, insiders at the MoD can see the potential for farce.

The UK is in the process of withdrawing thousands of troops from Germany, at the same time as thousands of military vehicles could be heading in the opposite direction.

There will also be some anxiety about so many of them being relocated outside the UK, where they will not be ready for instant use in any emergency.

"Moving so many vehicles to Germany would be quite a feat, especially any tanks," said David Willey, curator of the Tank Museum in Bovington, Dorset.

Savyindallas's picture

didn't take the germans long to mobilize from nothing in the 30's. They were screwed royally in the last 2 big wars. Don't count on lazy, corrupt Americans to stand in their way. Don't count on Russia either  -Putin and the Ruskkies just may well be their allies this time. And the french? They're not stupid. They won't stand in the way of the germans. They realize they are probably better off under German rule. The US? If not for superiority in nukes, we'b be toast. Our soldiers won't fight for the criminals ruling this country.           

NotApplicable's picture

Germany walk?

That's funny.

There will be war first. Lots and lots of war.

nameless narrator's picture

exactly.  it'll go down like this:  germany will *consider* walking.  then, they'll talk about it for 6 to 18 months,

hoping that the problem will go away or finding a way to kick the can (read IMF, EFSF, LTRn, the FED, yada-yada)...  

have they ever done *that* before?   then, after the agonizing time loss, they'll be so used to the status quo (in this case printing),

they won't do a thing.

If the interminable can kicking is looking bleak, they'll run DUAL currencies: the Euro and the DM.   that's their pole-cat reality.

and what's a pole-cat?   basically, its a pussy.

daxtonbrown's picture

Yup, we are already in a civil war over debt bondage - slavery if you will. Unfunded US liabilities are over $100 Trillion. It won't look like Civil War I because one of the biggest new Territories is the Internet instead of physical land, so there may not be as much bloodshed. More like an extended OWS. But as ZeroHedgers know, once you start looking at the balance sheets instead of the propaganda from the Ministry of Disinformation,there is just too much debt to ever redeem.

The Fed Gov is spending 40% more than it takes in and this situation won't change. What this all means is that at some point the younger generation will wake up and walk away from obligations they have no moral obligation to fulfill. Here's a little more on what a Civil War II would look like.

RockyRacoon's picture
Odious debt

In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfill one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State.   Odious debts, contracted and utilized for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.

LawsofPhysics's picture

So, does this mean Mr. bush and obama will be splitting the tab for the wars since 2001 with their own personal wealth.  Sounds good.