Germany Frets As Bailouts And Risks Balloon

Wolf Richter's picture

Wolf Richter

In her speech at the Davos World Economic Forum, Chancellor Angela Merkel warned that Germany might be overwhelmed by its efforts to bail out the Eurozone. Germany must not make promises that in the end can’t be kept, she said. It doesn't make sense to demand a doubling or tripling of Germany's contribution. "How long will that remain credible?" she asked.

The government’s reluctance has made Germany the favorite punching bag of the economic world, and most certainly of George Soros, who mused in Davos: "It's Germany that dictates European policy ... the trouble is that the austerity that Germany wants to impose will push Europe into a deflationary debt spiral."

But every few months, the amounts to bail out Greece are rising. And it’s not just Greece. Other countries are on life support as well. So the bailout mechanisms have become a bewildering and expanding array of direct and indirect contributions, commitments, and guarantees that, theoretically, all 17 member states of the Eurozone would share proportionately. But five of them—Portugal, Ireland, Italy, Greece, and Spain—are in trouble. So the remaining 12 have to shoulder their burden, and some of them are already teetering as well.

Now all eyes are on Germany. CESIfo, the Munich-based economic research group that publishes the closely-followed Ifo Business Climate index, has put a pencil to Germany’s maximum exposure over time. The report takes into account Germany 27.1% share of the ECB and 6% voting rights of the IMF. Total exposure: 635 billion ($831 billion), a whopping 27% of Germany’s GDP. And it doesn’t even include any bailouts within Germany. The details:

- €22 billion for the first bailout package for Greece, agreed upon in May 2010. The Eurozone would contribute €80 billion, the IMF €30 billion—to be paid out in tranches. Germany's share is based on its share of the ECB (27.1%).

- €1.8 billion for Germany's share (6%) of the IMF’s €30 billion contribution to the package.

- €12 billion for the European Financial Stability Mechanism (EFSM) of €60 billion, established in May 2010—based on Germany's 20% share of the EU budget.

- €253 billion for the European Financial Stability Facility (EFSF), established in June 2010 and enlarged in October 2011 to €780 billion. Germany’s share is 27.1%, or €211 billion. Also included is the 20% increase allowed under German law.

- €15 billion for the IMF’s €250 billion commitment to the EFSF. Germany’s liability is based on its 6% voting rights of the IMF.

- €94 billion for the ECB’s purchases of sovereign bonds, now €219 billion. Germany’s exposure is composed of two factors: its share of the ECB (27.1%) and its portion of the share of Portugal, Ireland, Italy, Greece, and Spain, which won’t be able to fulfill their commitments to pay the ECB for losses. For a total of 43%.

- €237 billion through “Target2.” Target2 and its predecessor “Target” were a mundane part of the ECB's interbank payment system. The ECB would temporarily borrow money from the central bank of one country and lend it to the central bank of another. In 2008, however, as capital flight from periphery countries began, the credit flow became one-sided and ballooned with each new outbreak of the debt crisis. Thus, these ordinary credits became the first de facto bailout of crisis-struck countries. By November 2011, the credits that were extended to the central banks of Greece, Ireland, Portugal, Spain, and Italy amounted to €556 billion, according to Ifo.

Germany's share of Target2 credits is based on its share of the ECB. Since Greece, Ireland, Portugal, Spain, and Italy won’t be able to bear their share of any losses, the remaining 12 countries would have to bear them proportionately, giving Germany 43% in total exposure to Target2 credits.

And so Merkel's question—"How long will that remain credible?"—has become a litmus test for Eurozone bailouts. But bailouts take on a life of their own. In September 2008, Treasury Secretary “Hank” Paulson walked into the Capitol and threatened that the whole world would collapse if his demands weren’t met. Paulson's extortion worked. So, Greek prime ministers imitated him. And now Christine Lagarde, managing director at the IMF did it too—and hit the red line on the threat-o-meter. Read.... The Art Of Extortion: Now At The IMF.


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Mensagens Para Orkut's picture

Left out Germany's allotment of the European Investment Bank (EIB) bonds. If the ambit can't help, that is traveling to become a whopping bill.
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nahshal's picture

Actually, no, the reason that these are bargains is the same reason Goldman runs the world, namely governement giving assets away to oligarchs at "pennies on the dollar".


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nahshal's picture

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nahshal's picture

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Olympia's picture


...the barbarians, who forced beautiful Europe to get down Zeus’“back” and made her a prostitute ...the unworthy Europeans, who in 1945 “took Europe down” from “Mount Olympus” and in 2012 relinquished “enslaved” Europe to the Phoenician loan sharks.

Germans are proved to be the easy solution to breach Europe’s door. Whoever wishes to “set foot” on Europe and demolish it, the only thing he has to do is to “fool” the Germans. For a second time in less than fifty years, Europe’s idiots become the victims of foreigners and they serve their interests at the expense of Europe...



The German traitors of Europe along with the Phoenicians from Asia may have forced Europe to get down from the "back” of the Greek “bull”, but it remains to be seen how they shall pull it through with the “bull”.



falak pema's picture

broken euro dreams and future impending mayhem; choose your solution : either you are part of pax americana's surrogate capitalist construct team or you try and build independent model; and pay the price for it. As freedom is never easy, from a sixty year geo political and financial monopoly.

Bottom line : Upto 1971 pax americana helped euro rebuild. From then on it went ponzi fiat selfish and under Thatcher-Reagan it morphed into  mega hubristic and now has become suicidally imperial since 2008; prepared to sacrifice everybody in "beggar thy neighbour" ponzi debt mountain and speculative casino play. A road to nowhere but Hell.

The chips are down; either Euro zone has an independent future vision and is prepared to pay the price or it will burn in the bonfire of vanity of US oligarchical suicide, without creating in this dire destructive spiral any future model of its own, caught between continental fractal faults and condemned to nation state defaults, like the city states of ancient Greece, outflanked and then brutally fleeced by Imperial Rome and Carthage on rampage. 

The current Merkozy leadership and its disastrous handling of the crisis imported from Greenback land since 2008 does not bode well for the "Euro solution". Its now late in the game to find Euro resolution. 

All first world markets now looking like Costa Concordia, heading for dystopia. 2012/2013 look like being tipping point years. Kick the can, kick the can, hide the scam under the carpet, we will find the light at the end of the tunnel...hopium is its own lethal medicine. 

Ghordius's picture

very well written, nearly poetic. I agree with some points and disagree with:

- the "dream" is separate from the current imperial setup. and this is my biggest worry, the US electorate suffers from a strong "empire-blindness" at the moment

- the tools, including the common currency, can be exchanged, their true purpose is still defence from external shocks, including the global banking cartel - so far, they are working as designed

- the game is still led by Washington, so all options and initiatives are contingent on what Washington allows

falak pema's picture

I hope your are right on defensive front. From a geo political view, I have posted elsewere today : USa now moving to a Pacific alliance with China, to the detriment of Eurozone. It will have long term consequences and Europe has no real continental strategy in place except austerity and protectionsim; whereas it has many talents to incubate that lie waste.

In Europe we URGENTLY need a comprehensive common economic and industrial policy that is far seeing and not beggar thy neighbour, but complementary. Eg. If Germany leads in mechanical industry and Italy in textiles, France and Spain and the others should find new areas to specialise by creating value added chains. We have now to think as Continental civilization. WIth our own place between Asia, Africa (vast potential so tragically exploited in neo-colonial syle since centuries, natural partners to Europe) and the Americas. 

AnAnonymous's picture

Funny one.

How long will it remain credible?

Quite easy.

Money has to be parked somewhere.

In an extorting of the weak, farming of the poor game, no better place than on the ganglord's turf.

Change in ganglord might imply change of turf.

Until that point, money has to be parked somewhere.

Forget about the US citizens litmo calling for a sort of ethereal world where economical decisions are taken and assessed in all fairness.

Extorters and farmers all depend on the source of violence that enable their scheme.

No change in that source, no change in turf, no change in the best place to park the money.

Money never sleeps's picture

These guys frickin nail it once again, went short almost everything last week:

Sandmann's picture

Well if Germany can't handle that Debt it is the endgame for the USA. The US banking system will implode as Deutsche Bank is one of the largest components of the global financial system. No doubt Americans will find new opportunities as Detroit becomes the norm across the US because without the world's largest and richest trading bloc - the EU and EEA - it will be a very 18th Century time in the US

Cast Iron Skillet's picture

well, the German parliment just reactivated soffin - a bank bailout mechanism - to the tune of over 400 million € ... so Germany is on the hook for round a trillion.

Staatshilfen stehen wieder für Banken bereit

doesn't sound promising to me ...

Tuffmug's picture

"How long will that remain credible?" Screw Germany! They created and entered into a currency union which they KNEW was dysfunctional and capable of exploding and now they and every other Euro member should pay for that stupidity. Too many tears being shed and too many justifications made for Germany to walk away based on the false spin that frugal and hard working Germany was raped by those shiftless and lazy PIIGS. It's true they were fucked and now they're pregnant, but they can't cry rape.

Sandmann's picture

They had to enter a Currency Union. It was the price demanded for Re-Unification - after all Churchill and Roosevelt gave France an Occupation Zone in Germany in 1945 for its heroic efforts as a wartime Collaborator with the Nazis. Only the Soviets got similart treatment, but they had to fight for it after 1941.

Germany was blackmailed by France and Mitterand's breibes to Kohl (see Leuna). The German public was never consulted. You might as well blame US voters for bailing out the Banking System. They didn't stop it !

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Non Passaran's picture

Ada the Bot Bitch.

"Maybe she just needs an oil change... I can't believe I almost fucked it."

nahshal's picture

yes  Germany should probably pay for having balooned market for its produce for about 15 years. who's playing? :)


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disabledvet's picture

the question should be "how long will this remain INcredible" actually. Here's some theme music for the occasion:

Schmuck Raker's picture

I would like to highlight for everyone the link that Wolf provides, to the report he's speaking of.

If for no other reason than it immediately presents a very good graphic of the current and potential bill for all these EZ bail-outs, and just Germany's share.


Eurozone countries’ exposure, highlighting Germany’s share, derived from bailouts and other financial support measures for distressed countries


BTW, it's a quick read.

Nachdenken's picture

Alles Klar, keine weis Bescheid - very clear, but no one knows what to do.  Why should Soros be concerned about German  austerity or Greeces lack of it.

satan2liberals's picture

"the trouble is that the austerity that Germany wants to impose will push Europe into a deflationary debt spiral."


IMHO: That's exactly what needs to happen, otherwise the cancer still grows and the patient thinks the causative behavior

           has no consequence.

Georgesblog's picture

There isn't as much pie as they thought there was. Extortion doesn't work, after the money is all gone.  Now, that the reluctance to touch more debt is growing, it is inevitable that creditors will want collateral. Countries will sell off industry and infrastructure to get relief.

steve from virginia's picture


The freeloaders and deadbeats are the industrialists who beg and borrow calling themselves 'entrepreneurs' and 'innovators' but what they innovate is how to steal your money and make you feel good about it.

Has anyone ever taken the time to figure out why there is all that debt in the first place? Hundreds of trillions of euros, dollars, sterling, RMB, yen, etc. are not pensions but business profits. The dolts who buy iPads will be paying for them for the rest of YOUR lives.

The Monkey's picture

You mean like Solendra?

The debt bubble exists primarily because of the Federal Reserve. The period from 1982 through 2007 saw the most benign series (in GDP terms) of recessions in US history. Recessions during the great moderation occurred at time intervals nearly 2X the length between recessions during the rest of US history. The Federal Reserve and also the fiscal apparatus has come to believe that growth should be a permanent feature of the landscape (even if the 9th credit card must be maxed out). Contraction and falling prices have come to mean "Great Depression", or so Kruman and his ilk tell us.

Contraction and liquidation was once seen as a natural part of the business cycle. The complete lack of liquidationists at this pivotal point in history is very telling. We are on the right shoulder of a very, very major top.

old naughty's picture

and they say those who believe in globalist conspiracy theories are illogical – even downright nutty...

Ropingdown's picture

Left out Germany's share of the European Investment Bank (EIB) bonds.  If the periphery can't help, that is going to become a whopping bill. 

Hedgetard55's picture

I've seen this movie before, it's called "No Way Out". Good flick.

morkov's picture

Germany should probably pay for having balooned market for its produce for about 15 years. who's playing? :)

Dermasolarapaterraphatrima's picture

Similar to Welfare babies crying "no more free stuff" when the Frgualites clamp down.


Q: "Why should the hard workijng savers and frugalites pay for the freeloaders and Deadbeats?"

Cast Iron Skillet's picture

you know, I once talked to a welfare recipient who actually offered an answer to that question. He said from his point of view, the State was paying him not to work in order to keep the wages of those who do work higher. logical in a sick sort of way ...

Heyoka Bianco's picture

Repeat ad nauseum : "It's a giant shit sandwich and we're all going to have to take a bite."

Might as well dig in now and swallow quick, because it's only going to get fouler.

daily bread's picture

Do you know the story of "Bacillus subtilis"?  I don't know if this is urban legend, but here is a World War II story:

Once the good hygienic Germans finally recovered from the shock of seeing the Arab natives gulping down warm camel dung, they quickly realized that there must be something in the dung that somehow counteracted the harmful bacteria that caused the dysentery. They questioned the Arabs, who told them that they had no idea why it worked, but that their fathers had always done so, as had their forefathers, and it had always worked. The only caveat was that the camel or horse dung had to be ingested while still warm and fresh, because it had no effect on the dysentery if ingested cold.


So the Nazis began carefully examining fresh camel and horse dung. What they discovered was that it was teeming with a powerful bacterial microorganism which later came to be called Bacillus subtilis. This bacteria, it turned out, is so strong that it practically cannibalizes all harmful microorganisms in the human body --- particularly pathogenic bacteria like the virulent strain which was causing dysentery in the German troops.

The full article.

Zero Govt's picture

"George Soros, who mused in Davos: "... the trouble is that the austerity that Germany wants to impose will push Europe into a deflationary debt spiral."

Yes George, that's how things are fixed mate

You've got your economic arse about tit ...deflation is not a "problem", it's the solution

Tutt, bloody stupid old socialists eh!

old naughty's picture

Did you just call him a socialist? A bloody stupid old one?

LowProfile's picture

That list of fiscal patches brought to mind image of someone frantically trying to sandbag an overflowing river.

LowProfile's picture

Only until the revaluation.