Revisited: Three Data Points That Prove Europe Cannot Be Saved

Phoenix Capital Research's picture


I first published this several weeks ago. Given the acceleration of the mess in Europe, I think it's worth reviewing. Until these three facts are in fact addressed or solved, the EU is finished and its banking system will collapse.


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.


By the way, the EU’s banking system is $46 trillion in size.


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 interventions 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 How to PLay the Collapse of the EU Banking System report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.


Within its nine pages I explain precisely how the EU banking Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).


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.


And ALL of this is available for FREE under the OUR FREE REPORTS tab at:


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skepticCarl's picture

"I first published this several weeks ago."

It seems just like yesterday to us bored readers

EmileLargo's picture

The Greek default was a remarkable non-event. I was expecting a Lehman type panic. Nothing happened. The ECB kept the taps open and simply provided a lot of "liquidity" which avoided a default by any of the European banks. This is the only way to go going forward to avoid a major bank from going under - which means PRINT MONEY.

The Germans will walk eh? If the Germans have not walked after a five-fold expansion in the ECB balance sheet, when do they walk exactly? They already have printed an enormous amount of money. The promises German politicians made to their voters on the Euro are already worth less than toilet paper. The German politicians will not walk away from the Euro until inflation starts to skyrocket IN GERMANY. At the moment, Germany has record low unemployment, a relatively healthy economy and little by way of any signs that the Eurozone is in this death-spiral. It is the EYE of the storm.

The US problem is not bank leverage (much lower than Europe although it SHOULD be lower), it is the US government's growing and uncontrollable spending. And yes the Fed will print money - haven't they been doing this for three years since Lehman? As with Germany, the Fed doesn't need to worry until a loaf of bread costs $10. Until then, the country will be asleep arguing about all kinds of other things.

smb12321's picture

Germany is caught in the same demographic trap as the rest of Europe - only worse.  She continues to lose population yearly (NOT simply rate of growth) despite an annual influx of 200,000 non-EU refugees.  

Her productivity is an asset only if she retains buyers (no comment on the future buying status of the EU - LOL). It's the same problem as all Europe: A generous welfare state with decreasing workers trying to support an avalanche of retirees and maintain their standard of living with mounting debt.

Jack Sheet's picture

Right on. I gave you an up arrow. Pity you aren't writing the post rather than this joker Summer.

Jack Sheet's picture

.."will collapse at some point in the future.."
Great call.

ebworthen's picture

Bullish for Deutschmarks!

Bullwinkle Moose's picture

Gee, Rocky, haven't we been here before?

areopagetica's picture

Regarding point #2, if the PIIGs or banks default on debt held by the ECB, it is not true that the "ECB is on the hook" or has to shift losses to the banks.  Instead, the ECB would have effectively monetized that loss.  Central banks do not have to balance their books.  Debt they hold is in a sort of limbo.

RoadKill's picture

Butt Butt.... They are Basel 3 compliant and we arent

Ghordius's picture

to each it's own unicorn accounting method

Ghordius's picture

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

This one is hilarious - the FED is bigger for several reasons, including the reserve currency status which makes the global dollarzone.

Ghordius's picture

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

ehmm... so what? US Treasuries behave on the market as the EUR does, like a "bundle". A look at the FED's balance sheet? I think this arguments wants to hint to what it would happen if a country would exit the eurozone - without using the historic precedents.


"If the ECB chooses to do this, Germany will walk. End of story" - Not if Ben Bernanke and China are printing even more.

Gemany will tolerate printing as long as the eurozone is responding to the currency wars.

The current crop of Germany-bashers can't have a Germany being aware and even applying mercantilist practices and then suddently being too principled too use the most obvious monetary policy to solve pending "catastrophic" problems.

Decide, either they know the game played or they don't.

gaoptimize's picture

I think he is trying to make a point like: "If Eurobanks are leveraged 26-to-1, a drop of 4% in their assetts would make them insolvent.  If 25% of their assetts is PIIGS debt, and impaired by even as little as 20%, the assetts of Eurobanks are worth only 95%."  QED - Eurobanks are insolvent.  The facade of solvency is maintained by the fictitous and crumbling scaffolding that PIIGS debt can be held as an assett at par.

Ghordius's picture

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

this fact conflates two other facts:

1a) The leverage of a small number of investment banks 


1b) The leverage of a great number of commercial banks in their direct loans to companies (a far more usual financing way of the european companies)

1a is "as scary as elswhere", in London "scarier as elsewhere" - 1b is more of a strong point of the eurosystem


no, this does not convince me that "the eurosystem is doomed"

bank guy in Brussels's picture

Europe will be saved by its clever government

With an unlimited licence to inflate and to print

battle axe's picture

I have said it before and I will say again: GREECE DEFAULT!!!! At this point you have nothing to lose, except maybe the boot that is on your neck. 

Ripped Chunk's picture

Angela's boot.  Greeks seem to remember the 300,000 that starved to death during the Nazi occupation. People don't forget that so soon.

Many political cartoons in Greece now with swastika's on them.

Zero Govt's picture

Greek cartoons with swastika's is about as sensible as throwing stones in glasshouses

it was Europe and Germany bankrolling it that has kept Greece gorging on other peoples money and a high standard of living (for the bloated public sector) for this past decade

maybe the Greeks need to wise the fuck up at who got them into this massive pickle (hint: socialist political families) and stop looking for scapegoats

it's not like the 'Birthplace' of "democratic Govt" isn't littered throughout with repeatedly going-bankrupt democratic Govt ...will they ever learn what the problem is?!!

Jack Sheet's picture

you are both right. The printing is for the banks not for the Greek population

Widowmaker's picture

What part of unelected governance don't you understand?

Fascism Act 1 - Greece

Ripped Chunk's picture

Greek government has sold its citizens out. The people need to revolt. This should be a great summer for tourism.............