After Eurovision Comes The Euroscramble: Europe's Latest "Silver Bullet", "Secret" Bail Out Plan

Tyler Durden's picture

Mere hours after the annual European Eurovision song contest ended at a cost to the host country in the hundreds of millions, money which should have been spent productively elsewhere but wasn't while providing utterly unnecessary distraction to hundreds of millions from what is truly important, we get another stark reminder that the continent is not only broke, but that it no longer even pretends to have credible ideas about how to go about fixing itself. The latest speculation: "Secret plans are being drawn up in Brussels for a European rescue fund that could seize control of struggling banks across the Continent. The scheme, which would be funded by a levy on banks, will be presented by supporters as a "silver bullet" that could halt the steady escalation of the eurozone debt crisis. It is being worked on in tandem with a proposal from Mario Monti, the Italian prime minister, for a Europe-wide guarantee on bank deposits. The proposal would throw the financial muscle of Europe's stronger nations, and healthy financial institutions, behind weaker countries and lenders. Proponents, including top advisers to the European Commission, say the removal of the threat of bank collapses would restore market confidence in Italy and Spain." In other words, last week's rumor that was supposed to be presented at the latest flop of a FinMin summit is once again being reincarnated as apparently nothing else in the European arsenal has any remaining credibility - and as a reminder, none other than unelected Monti's one-time employer Goldman Sachs said a eurowide deposit guarantee would not work.

The kicker:

"The bank scheme would see all eurozone lenders forced to pay an annual levy to a deposit guarantee scheme set up as a separate company. The company would be back-stopped with cash from the European Union, the European Central Bank or the new European Stability Mechanism."

Bottom line: the "silver bullet" plan is "secret? because it is a total farce, and nobody could possibly present it with a straight face for one simple reason - there is no source of money. No hold on, there is - Germany. And as Merkel made it very clear, Germany will not fund it. Why? Because once it starts, it won't end.

Why won't it end?

Instead of regurgitating what we have already explained countless times, here is a CTRL-C, CTRL-V of our article from a month ago, which explains that since the total undercapitalization of European banks is as much as €2.9 trillion, there is not one entity that can possibly backstop the entire towering edifice, which is the only possible thing that could restore confidence in Europe's financial system. Simply said: banks can not raise levies to prop up their peers, as they have to raise capital to support themselves! And anyone suggesting otherwise, is merely pandering for populist brownie points, and hoping their electorate is dumb enough to fail even elementary math. Our only question is how long will Merkel tolerate Monti's increasinly louder demands that Germany bail out Europe's insolvent states, such as Italy... and just how truly deep is the Italian "hole"?

From Zero Hedge, April 29, “A Trillion Here, A Trillion There...” – Why 90% Of The European Bank Sector’s Market Cap Is Vaporware*

Two weeks ago the BIS released the Basel Quantitative Impact Survey, "Results of the Basel, III monitoring exercise as of June 2011" which contained several very scary numbers that were noted in Zero Hedge yet which barely received any mention in the broader press. Because the numbers were all very, very large (think eyes glazing over 11-12 digits large), and because their existence meant that the long-term, chronic pain for Europe, which is and has been one of public (and selected private) sector deleveraging (which oddly enough is called “austerity” by everyone to no doubt habituate people to associate debt reduction with pain - where is "mean-reversionism" when you need it?), they, and the BIS report, were promptly buried under the dense foliage of the signal-to-noise forest. Yet it is numbers such as these, that provide us with the best possible glance at the entire forest, no matter how much the various global financial authorities enjoy inundating the hapless speculator crowd with endless irrelevant “trees” on a daily basis.

The numbers referred to are the BIS-suggested bank solvency deficiency to reach a viable capital level (not liquidity) explained as follows by UBS:

The QIS states that the June 2011 shortfall of common equity to a 7% common equity tier 1 ratio for major banks globally was €486 billion. We can estimate from this that the shortfall to a 10% common equity tier 1 is €1.02 trillion. Some years hence and before the mitigation that banks will undertake aggressively, but nevertheless, a trillion is a striking number.

UBS is perfectly happy to "go there":

A trillion here, a trillion there...


The QIS then goes on. The shortfall to the Liquidity Coverage Ratio is €1.8 trillion and 40% of banks have a LCR below 75%. And the shortfall to the Net Stable Funding Ratio is €2.9 trillion. A third of large banks would not meet the 3% tier one leverage ratio. These are gigantic figures relative to the size of the real economy.


Total bank debt issuance globally in the last 12 months was €1.1 trillion. That is, the shortfall in the Net Stable Funding Ratio is almost three year’s worth of issuance capacity.

In other words we not only finally have a problem quantified in terms of scale, but the scale happens to be very, very big:

These figures compare with global GDP of US$59 trillion (€45 trillion). In other words, the NSFR shortfall is equivalent to over 6% of global GDP. We would not regard this as insignificant.

One can just feel the smirk on the author's face as they added that last bit...

But forget global GDP - a number goosed by debt creation itself, and thus one which benefits from leverage, the very process the BIS is warning against.  Far more disturbing is this number when juxtaposed in the context of the European financial segment, also the inspiration for our title:

For Europe specifically, a related EBA publication15 implies a €511 billion equity shortfall to a 10% common equity tier 1 ratio. This is 90% of the €565 billion in free float market capitalisation of the European bank sector. The Basel III leverage ratio of large banks as of June 2011 would have been a measly 2.7%; the LCR just 71%, representing a shortfall of €1.2 trillion; the NSFR shortfall is €1.9 trillion. Total European bank debt issuance over the last 12 months has been less than €600 billion.

In simple terms, virtually the entire equity buffer of the European financial system, or 90% to be exact, would be wiped out if instead of focusing on maxing out risk returns by unsustainable leverage, Europe’s banks were to actually seek to transform into viable, stable entities, in the process marking their massively mismarked asset base to market. Something tells us that the equity tranche in Europe, and elsewhere, would be rather averse this dramatic writedown in valuation merely for the sake of avoiding future taxpayer bailouts. After all that’s what naïve, stupid, $0.99 cent iApp-fascinated taxpayers are there for: to be abused.

In other words, thanks BIS but your math is not welcome here. The can will promptly be kicked down the road or else.

Yet what is most troubling is that there appear to be no way out for European banks, in other words not even the status quo’s favorite pastime – can kicking – is very sustainable at this point:

Returns on banking are now quite inadequate to attract significant fresh equity into the sector. The regulatory agenda means that there is likely to be little confidence in this changing over the next several years. Banks must therefore turn to the state for their incremental capital or seek to shrink their profile into the amount of stable funding and equity they presently have. Deleveraging is alive and well and living in the euro area.

And just a tangent, the BIS data and analysis was of June 30. That's before all the fun in Europe really started.

Needless to say, raising $2+ trillion in new capital over the next 5 years will be next to impossible as European banks are hardly what one would call profitable (implying retained earnings as a source of capital is nothing but a cruel joke; now as for retained losses...), and as we saw when UniCredit tried to raise some equity in the open market only to see its stock get annihilated in January, pitching capital raises through equity issuance to Euro fins is the surest way for any investment banker to get sacked.

Which means one thing: as markets get progressively smarter (yes, it will take a while) that there is a difference between capital and liquidity, and demand it from banks that otherwise risk a Lehman-like fate, the asset dispositions, i.e., sales of the blue-light special variety, are about to kick into high gear. Here, while for every buyer there may be a seller, when faced with a known onslaught of about $2.9 trillion in asset sales over a period of time, one thing is certain: it will be a mecca of a buyer’s market as liquidations become wholesale and prices across most asset classes tumble as a result.

And as noted in the post just prior, courtesy of Europe’s Dead Bank Walking list, the market will know just where to go first (and second, and third, etc) for the biggest liquidation deals once the “For Sale” signs are posted.


* Vaporware in a Jon Corzine sense, circa November-December 2011; not in the context of Duke Nukem

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LetThemEatRand's picture

The second richest woman in the United States is a Walton.  By marriage.   She married one of Sam's son's.   She wasn't even born into it.  But she's one of the 400.  

nmewn's picture

So what?

Sam Walton (or her or his son) didn't force banks to loan money to people who couldn't pay it back and allow swaps on it.

That was government "public policy".

Sam Walton (and his heirs) are not Jim Johnson or Bob Rubin or Jon Corzine or Solyndra or LightSquared or Fisker...very different things LTER.

Matt's picture

So do you begrudge her the wealth or not? She didn't earn it, but she didn't gain it through manipulating the system and taking from other people, either.

Precious's picture

WTF is Walton to you, you covetous little, illiterate wretch?  You share with him 99% of the common human DNA?  What else. Any other reason for you to give a shit about Walton?  Let me guess.  Your real name is Chuck Schumer.  Get the fuck out of here, dipshit.

nodhannum's picture

"Why do these idiots think they are smarter then the laws of physics and want to defy gravity"?  

They don't think that they are smarter...they just want to kick the can down the road and collect their goodies before it blows up...on someone elses watch.

ElvisDog's picture

Borrowing more money to pay down old debt

Yeah, that's what I thought I read too. So, the bailout plan for the failing banks will be paid for .... wait for it ... by assessing a levy on the failing banks? I know I've written this before but as disappointing as Obama is, compared to the fuck-heads that are in charge of Europe right now Obama is Themistocles.

RiverRoad's picture

And the autopsy report will show that the Euro was actually talked to death.

Papasmurf's picture

this AMEX card ends 1/20/2013.

stocktivity's picture

They're going to jack the markets up Monday on more hopium. Our markets in the US will rally Tuesday as the sheepie follow the hopium. It's all Bullshit!

vast-dom's picture

*Vapor Nations

*Vapor Currencies

*Vapor Planet

disabledvet's picture

If by that you mean "the gold" I agree with you. How did the ditty go? "London Bridge is...

RiverRoad's picture

Good.  Let 'em squeeze blood out of those turnips for a change.  BTW it's called "consolidation" folks...and it's about time.

Squishi's picture

secrets are best kept in churches. 

Ahmeexnal's picture

Unless the buttler likes to spill the beans.

bank guy in Brussels's picture

Church secrets - You mean like with the Vatican bank?

The Vatican church bank ... Just a few scandals ... arrests ... missing or lost or stolen funds ... people found dead.

Tho I suppose that doesn't make them much different from many other major banks around the world.

It's interesting historically that three things all took place around the same time, just after the year 1000 -

- Vatican splits away from Eastern Orthodox Christianity

- Rise of banking in Italy to handle Vatican church monies (bank from 'banca' bench used to count church money)

- Start of international wars, 'crusades' against the Middle East, propaganda about the Muslim 'threat' ... Western banks help finance 'Crusader Kingdom' in Palestine to harass Muslims ... around where Israel is now ... creating 200 years of Middle East wars and problems

That was 900 years ago ... same playbook today.

frenchie's picture


Church started to become a non church even earlier as jews stepped in to destroy it from inside...

Same jews who run the world nowdays, stating they do God's work... but as a jews place themselves next or even above God (read Talmud), it isn't very surprising...

SMG's picture

It's the Luciferian Illuminati, not jews.

CrazyCooter's picture

Look guys, the Earth just wants plastic and will do what ever it takes to get it, including war and banking proxies via humans. Unfortunately for the humans, the strategic plastic reserve in the Pacific ocean is almost sufficient ...



Pure Evil's picture

Hell, if we're really gonna head out on the limb, let's just blame the Grey's and the Reptillians.

CPL's picture

While there are angels in heaven, there are also Hero's in hell.


For rest of us in Limbo, grab a chair, these fools are about to burn down both of their own established positions as demagogues usually do.  Drinks are in the fridge and grab a chair.  The mocking will commence on Monday

disabledvet's picture

"and two entire Continents were discovered with nary a soul on them." is all we have ever done in our lives pre-ordained or is the very concept of will itself an illusion? We still haven't even begun to "think this thing through" here yet. Off to a good start tho. Socrates dead tho he is would be proud...

CrazyCooter's picture

Excellent comment, DV.



resurger's picture

Church confessional box > CIA+Mossad+MI6+MI5+SVR+etc

CPL's picture

Yup.  It's amazing how fast first hand knowledge can travel without the septic government channels.

Calmyourself's picture

Not a fan of Britains nanny Government but I would love to have a handful of your journalists some of them tell the truth.  So refreshing and rare the simple presentation of truth, I miss it in our public discourse.  I realize why it is so dangerous especially in America but I  yearn for simple unvarnished apolitical truth.

Confused's picture

I wonder how many people deny "climate change" (or whatever fucking retarded term you want to use), simply don't believe because they feel some power elites are trying to profit from it, or are they really in disbelief?


Because people don't seem to have a problem with the idea of an invisible shield (Ozone) around our planet that protects us from the suns rays disappearing due to human activity. But this "global" warming thing really gets peoples blood going. Strange.

Calmyourself's picture

It is very simple to measure the effect different levels of ozone have on blocking radiative energies.  No feedback mechanisms necessary, simple action.  Most folks also know the ozone hole in the Antarctic went away.  To complete your point the ozone depletion scenario was not seized in a political attempt to strengthen leftist/ communist control over resources and energy usage, they were not quite far enough along in their thinking.  Give people credit they can feel a power grab in their bones most do not know how to defeat it but they know it exists, the big lie that is..

Manthong's picture

Well, that’s a hoot..

Next thing you know folks will be thinking gold is money, Hayek was right and Keynes was a socialist bigot.

CPL's picture

And now that is out there, it's time to establish real capitalism versus the commie lottery shit show we've become accustomed to.

Confused's picture

Give people credit they can feel a power grab in their bones


Obviously sir, I agree with this. Which is why I read this site. But, as I said, I wonder if people shun the idea of "global warming" because of this feeling. OR, do they really not believe our actions affect the planet. I'm not sold either way. At least not 100%. But it would appear to me that our actions have effects the planet.

LowProfile's picture

Stop posting inane bullshit about AGW until you've read through at least six months of posts here:

AGW is a Power Elite control meme.

Confused's picture

What exactly was inane about what i posted? I never said it wasn't a power elite control. I asked if peoples beliefs are based SOLEY on the fact that someone is looking to profit from it. 


And thanks for the link. I will read up. But seriously, next time try being a little less self righteous. 

ThirdWorldDude's picture

Internet gives people the possibility to learn new things, now more than ever. If you have a critical mind, you would surely want to research an idea, such as the-man-induced-global-warming-now-renamed-into-climate-change, that is made public in this age of deception, especially if it includes such ramifications as carbon tax and "the green belts" embedded into Agenda 21. 

It is true that our actions affect the planet, but only on a minor scale. It has been proven that CO2 produced by human activities is only 3-5% of the natural CO2 emissions (think volcanoes) and the same goes for methane (a riddle that has recently baffled scientists is why is all that methane being released from beneath the Arctic permafrost at an astonishing rate). Personally, I have been following Piers Corbijn for a while and his research suggests that this is a natural process and that the Earth is soon about to experience a new ice-age.

Have also in mind that the whole Solar system is currently experiencing rapid changes, such as: the Sun is about to become quadrupolar (last time that happened, some 300 years ago, the Earth went through a mini ice-age), Mars' ice-caps are melting, Venus got a giant black spot, Jupiter first lost, then regained it's dark vortex-spot, Pluto and Neptune are getting unexplainably warmer and brighter etc. 

Confused's picture

Thanks for the well thought out response. As I said, I am not sold one way or the other, but admittedly I am no scientist.  I do not disagree with the fact that this is also being abused by the power elite. But really. What isn't? 

delacroix's picture

underground coal seam fires, have been burning for decades. auto emissions, are a small fragment of the problem, which is not global warming, but pollution.

knukles's picture

"Internet gives people the possibility to learn new things, now more than ever."

As folk orientate to Facebook, porn, games, inane e-mails, YouTube or shopping, I dare say the diversions have left humanity far dimmer than either the promise of the past.

That why it's called sociopath media

ThirdWorldDude's picture

Absolutely, but that's where the critical mind comes into play! The reality is that mediocracy/idiocracy will always be the prevalent option (which on the second thought is good - imagine if ZH had as many users as FacePlant! Me thinks the Gubbermint would've pulled the broadband plug at once...)

It used to be bread and circuses, now it's evolved to foodstamps & iCrap. 

This excerpt from "Waking Life" sums it up pretty nice

blunderdog's picture

It does seem a bit funny, then, that it's so impossibly difficult to figure what would happen with CO2 levels in the atmosphere when you destroy vast amounts of plant life and burn everything you can find to power your civilization.

That science.  It's whatever you want it to be.

blunderdog's picture

Why are you guys trying to make this discussion about climate change? 

Really.  I'd like to know.  How does refocusing from Europlanning banking bullshit benefit from this completely unrelated discussion?

Calmyourself's picture

The topic started with my post regarding unvarnished truth, like the truth that most deep sediment coring shows increased co2 is a lagging indicator to planet warming, beyond your intellect perhaps..  Truth while painful serves too few masters to be the dominant theme in this world. What would happen to your worldview if perhaps the GW was a scam, I have thought through what would happen to mine if the opposite were true.

blunderdog's picture

My "worldview" isn't impacted at all by the existence or non-existence of man's impact on global warming, but for sure your effort to sidetrack a completely unrelated discussion thread suggests you're a useful idiot for someone else's agenda.

Why don't we discuss rule of law and states' rights in conservative judicial decisions instead?

Here's a nifty tabloid story that should make you proud of...I dunno, something.

Apply Force's picture

Clouds correlate best to climate change... sun and space weather as players:



Papasmurf's picture

If "climate change" was real, the solution would not include financial rewards to Wall Street.  The association to Wall Street and trading of non-productive chits of paper shows it's another fraud scheme.

WillyGroper's picture

ur not too close to ur food source are u? When ur zone planting season has changed from 6-8 wks earlier in 3 decades, what more do you need? Pretty soon 2 cole crops & 1 warm will change to 2 warm & 1 ever brief cole if any at all. Then there's the issue of water. 

WAMO556's picture

I junked ya, for being retarded. Do you know what "OZONE" is? It is fucking OXYGEN. So when are we running out of O1, O2 and O3??? Can you say? Yes the the climate changes, about 4 times a year. Is it getting: HOTTER or COLDER? Which one. Oh yeah, we have to look at pictures of melting ice to see that the climate has changed? For real?!

This climate change Bullshit is about mind control - The disheartening part is some Americans will be foolish enough to actually believe it.

narnia's picture

It's mostly about a non-representative tax regime to back up a currency, which won't work. It's not a mystery why the World Bank & IMF are the biggest shovelers of this crap.

Precious's picture

People fucking worrying about global warming when for decades they've been eating FDA approved pink slime.

The sun fucking changes the surface temperature of the planet by 40 degrees every day. Global warmers, go fuck yourselves.  You're just an excuse to justify bureaucratic tyranny.  The earth will be fine for millions more years after your sorry asses are gone.

JoBob's picture

WAM0556:   Do you know what "OZONE" is? It is fucking OXYGEN.


Pay attention to the words: OXYGEN is oxygen. OZONE is ozone. Two different words for two different atomic structures. 

"retarded" should be used more carefully.