Euro Bailout Cracks Emerge; Greece "Just Says No"

Tyler Durden's picture

When reporting on the announcement of the math-free deus ex machina bail out that was announced last night, which nobody still has any grasp over, but it had a "trillion" in there somewhere so that alone sent the market scurrying, we suggested that it would take about 24-48 hours for reality to start settling in.  It may have been considerably less. As the Telegraph reports, "A trillion euro bail-out to save the EU’s single currency is in danger of unraveling after Germany’s central bank warned that the rescue measure was too dependent on the high-risk deals that caused the economic crisis." So what did the Bundesbank do to send tremors that threaten to fracture the brittle nanometer ice-plated facade under which the most tempestuous riptide in European history is contained? Well, first it appears to have used a calculator, something nobody else in the European Council seems to be capable of. Second, it realized that heaping leverage upon leverage to fix a problem, something even a five year old (non-Ivy league trained) would tell you is lunacy, may not be the best approach to fix the problems at hand. "The concerns were led by Germany’s powerful central bank, which expressed fears that a plan to leverage a €440 billion eurozone rescue fund to amass a “fire power” of €1 trillion, or £880 billion, resembled the risky finance methods that triggered the crisis in 2008. Jens Weidmann, the president of the Bundesbank and a member of the European Central Bank, sounded the alarm over the plan to “leverage” the fund by a factor of four to five times without putting any new money into the pot. He warned that the scheme could be hit by market turbulence with taxpayers left holding the bill for risky investments in Italian and Spanish bonds." Does that mean that the "ironclad firewall" is neither "ironclad" nor walls off any fire? Especially since neither the object (Germany) of the bailout nor the subject (Greece) appear to have any desire to go along with the deus ex?

As it turns out, apparently not even Merkel's promises that the EFSF would never have to be used, just the mere threat of its existence would collapse spreads everywhere, an assumption so idiotic not even Hank Paulson tried it more than three times, was able to set Weidmann's mind at ease. So what happens when, as it is bound to happen, and as we have been pounding the table on since the ill-fated July 21st bailout, realize that very soon (yes, French banks have been on downgrade review since September 14, and earlier today Sarkozy just announced French 2012 GDP growth would be a negligible 1%, something the rating agencies will be delighted to hear), following the French downgrade it will be all up to them? Another 500 pip surge EURUSD surge on short covering? We doubt it: following today's move there are no more shorts left in the Euro. Which means that the next push lower will have no natural buyers, and any Bazooka announcement will have to be much bigger, and thus far less believable.

From Telegraph:

Bill Gross, the founder of Pimco, the world’s largest bond fund, said the eurozone rescue would be a temporary fix for markets and that the fund could pose a high-risk for investors.


“No bazooka but should stabilize markets for now,” he messaged on the Twitter site yesterday. “Watch out if the plan is a giant SIV (structured investment vehicle) with levered risk.”


The plan to increase the European Financial and Stability Facility to €1  trillion on paper was attacked by economists as not enough to “stave off” worsening debt problems in Italy and Spain.


In a survey of economists, 26 of 48 thought the firepower was not enough. A plan for a €2 trillion fund was shelved after German and French opposition.


Doubts also emerged over the lack of detail on a proposal to let Greece help pay its rapidly mounting debt burden by negotiating a voluntary “haircut” that would allow it to write off about half of its debts.

But perhaps what is the worst news of the day is that Greece, the country which this whole shebang is supposed to make better, threw up violently all over the "rescue":

Greek opposition parties to the Left and Right united to condemn the eurozone deal amid mounting social conflict.


Antonis Samaras, the conservative opposition leader, said: “We are not closer to the solution but are faced with nine years of collapse and poverty.”


Dimitris Papadimoulis, a Left-wing MP, said new EU powers in the agreement to
impose austerity measures on Greece had a conflict of interest. “Those who
monitor us do not have our interests in mind,” he said. “Their priority is
that we pay back our loans.”

So... Now what? The Greek strikes will return until GDP grows? In the wacky, waving, inflatable arm flailing math word of Europe this is, unfortunately, precisely the only math that works.

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Irish66's picture

ECB is skeptical

Elwood P Suggins's picture

ECB - Europe Calling Ben


Pork Chops Rule!

max2205's picture

Ben has dropped the shock and awe market bomb. I am in awe

dlmaniac's picture

"Those who monitor us do not have our interests in mind... Their priority is that we pay back our loans."

Whoa!! So what's your best interest my dear Greeks? Let me guess: You do not deserve to pay your loans.

Some nerve.

LawsofPhysics's picture

They have nothing to pay for energy with, no energy, no commerce, no commerce, no revenues to be used to pay anything back. Good for them. At least now, in Greece, compensation will find it's way back to people who are actully worth a shit.

buyingsterling's picture

 No alchemy possible here: shit = shit. The EU is not a going concern, if it was a business it would file chapter 11. But the EU system is too rigid to change short of desperation, and incredibly, they're not there yet. Some input has to change, and only a few are possible: commodity prices, productivity, and initiative. Either the cost of creating wealth has to drop, or more wealth has to be created through initiative and productivity. Any other apparent solution is just laying the problems off on someone else.

CompassionateFascist's picture

Germany w/o Prussia is a a nation w/o a soul: the Ostland gone, its people massacred and scattered. So I find it hard to imagine that Germany is going to throw a real wrench this late in the game. Think of it: from Bismarck to...Angela Merkel. Pitiful.  

Bicycle Repairman's picture

The Greeks aren't paying.  Haven't they been abundantly clear about this?  They want what the US has.  Just print up some cash and hand it around.  Austerity is not wanted.

haibop's picture

This is going to impact the world the long term and keep in our memory. for years to come!

haibop's picture

unfortunately the situation is really bad now. silver

IQ 145's picture

LOL. Europe Calling Ben; very good. unfortunately more than a little of that is foreordained. With regard to the agreement coming "unravelled"; doesn't it have to get ravelled, before it can get unravelled? So far, it's just desperate posturing and running shit up the flag pole to see if , (anyone), salutes.

traderjoe's picture

Typically, I'm loathe to read/play the grammar snarks, but your name invites it...punctuation, spelling, grammar, yikes!

idea_hamster's picture

Does that mean that the "ironclad firewall" is neither "ironclad" nor walls off any fire?

No -- it just means that the iron-cladded side faces us, and we are all here with the fire.

The velvet padded side faces Davos, and it does in fact ensure that none of the inconvenient fire can get through to them.

After all, we wouldn't want to spoil such a nice luncheon with some smokey, peasant-populated reality, now would we?

Mike2756's picture

Even better now that they have kicked cds to the curb. Get a 50% haircut and no insurance? No problem!

Bumblebee Tuna's picture

What's all this talk about 50% off haircuts?  Is this Groupon's latest deal of the day?

Shit yeah, I'm in!

ArkansasAngie's picture

Gee ... is it because they are the first of the 1%'er's that are being throw to the wolves.

Maybe they should stop thinking of it as their money.

topcallingtroll's picture

I am in love.

You know what GAAP stands for.

Have you ever dated a troll?

ArkansasAngie's picture

not to my knowledge.

Southern girls were taught better than that.

optimator's picture

Southern girl that's a troll?  They talk so slow that by the time they say "NO!" it's too late anyway.

ArkansasAngie's picture

We get our meaning over in the same amount of time we're just a whole lot politer about it.

Getting my start in the golden age of computers I spent my time in fortune 500 offices in New England and later california.

Very educational.

When I left Akransas to get rich and famous I thought I was liberal.  I found out on that relative scale I'm not.

Now I watch the circus from my mountain top in Fayetteville.

Progressive libertarians unite!

WonderDawg's picture

You sound like my kind of gal. You, ah, have a room to rent, by chance? This mountaintop in GA is getting boring.

ArkansasAngie's picture

I don't know.  Depends.  How much you willing to pay.

I am an unabashed capitalist,

I've always thought that my list of what I wouldn't do for $,$$$,$$$ is shorter than what I'd do

MisterMousePotato's picture

An interesting thought. Or maybe an interesting way of putting a mundane thought?

Can't tell.

Now and again (well, all the time, actually), I drink too much and then post stuff online that, the next morning, I look at with some feeling of, oh, I don't know ... unease?

If you look at this in the morning, and don't feel any such sense of vague disquietude, then, well, I might just actually consider entering into a bidding war with WonderDawg for your spare bedroom.

'Course ... considering our respective avatars, you might have to value, uh, intangibles, shall we say?, as highly as AMGs for me to have a chance.

qussl3's picture

When's the next greek election, or portugese or irish one for that matter.

This isnt over, not by a longshot.

cossack55's picture

Do they use Deibold machines too?

UP Forester's picture

Maybe they'll use white and black marbles.

Only, like the olden-times, the politicians get to pull them out.  If it's a white one, they get to dig graves.  The graves are for those who drew black.

Mike2756's picture

Is that what they call a popular uprising now?

navy62802's picture

If ANYTHING slips up in the implementation of this "plan," look out below. All of those superfluous gains we saw today across the board will reverse x2 (at least) in short order. Many a trader will get cought in the bull trap.

topcallingtroll's picture

Shut up!

You are scaring me and I havent finished gloating yet.

IQ 145's picture

Sorry! Let's have a moment of respect so recent longs can gloat. A moment will do.

tallen's picture

Sell the news!

LongBalls's picture

Buying the rumor and selling the news is costing me money. The market seems to do almost the opposite of conventional thinking. Todays announcement should have been viewed as a credit event. I'm playing the tape. My trades are getting shorter and shorter in duration but in this enviornment staying in a position longer than a day can be very costly.

Mactheknife's picture

"Bear market rallies tend to end on good news. What more good news is coming?"

WonderDawg's picture

This is true. I'm wondering if there might be one more little poke higher before this thing rolls over. My near term shorts are getting killed, but I didn't roll the dice with enough to hurt me if I was wrong (which I was). My longer term puts are cheaper now, but I expect they'll still be homeruns. When you swing for the fence, you're bound to strike out a few times. Just keep some dry powder. We have to be close to the roll.

IQ 145's picture

Exactly. The old wisdom of the market traders doesn't go out of date; it's just a matter of timing. I find it easy to remember Marc Faber's statement that this is a rally in a bear market, and there will be no new highs this year.

haibop's picture

and make some serious money!

junkyardjack's picture

Since when do economist understand anything about reality?

Texas Ginslinger's picture

Any bets on the Germans secretly starting the printing of Marks once again..??

Will they be the first in the EU to go back to the old currency.??

I just don't see them willing to fund the Greeks way of tax-evasion life.

Why would anyone want to do that..??

Ghordius's picture

Well, according to Some they have lost the keys of the Panzers so they have to drive helicopters.

And no TNT so they have to fill the shells with money.

Operation Solidarity, just your usual invasion...

Lux Fiat's picture

Not betting on anything at this point, but there was an interesting article by Dan Amerman, sort of a what-if thought experiment.  No clue what is going to happen, but thought the following paragraphs provide an interesting viewpoint on why Deutschland may want to bolt sooner than later.  I think the odds lean towards the current EU accord sowing the seeds of far bigger problems on down the road.

"However, Germany didn’t actually borrow in its own currency, but rather in the currency of a monetary union. Therefore, while it is an unintended consequence, the EMU monetary crisis creates a windfall profit opportunity in that if Germany exits the EMU, it has a one time opportunity to effectively repay its external debts in drachmas and liras rather than marks. This windfall opportunity will carry its own accelerant, because the exit of Germany would shift the burden to France. France would now face the choice between carrying much of Europe’s financial burden on its back – or making its own exit from the euro, and reaping its own windfall profit, much like Germany. This exit would of course accelerate the destruction of the euro, which would increase the size of Germany’s windfall.

There is indeed a chance that if France thinks Germany is about to exit, then French national interest may require it to exit first. Being the first to exit means reaping the maximum windfall profits from the destruction of the value of a nation’s national debt.

Now this is certainly not to say that there won't be any economic chaos and turmoil in Germany, or that the resulting potential shrinkage of the German economy may not more than offset this fantastic windfall, or perhaps much more than offset it (with the same holding true of France). All else being equal, the German and French governments would strongly prefer that there were no monetary crises with their monetary union partners. The one time debt windfall from the destruction of the value of the euro may not provide anywhere close to enough value to voluntarily “cheat” bond investors.

However, if Germany feels it is forced to exit the economic and monetary union, the debt windfall effect provides a powerful incentive to do it sooner rather than later. The lower the euro falls, the greater the damage to Germany, and the less the benefits of the windfall. If things are right on the edge – the greater the chance that France will strike first, and reap the disproportionate benefits of being the first strong power to leave. Taken in combination, this means that while Germany will likely continue to do everything it can to avoid having to drop the Euro, if and when it decides an exit is inevitable – Germany will have powerful financial incentives to move with breathtaking speed in destroying the euro. As will France."

WonderDawg's picture

Interesting. I'd say that could be the black swan but we all know you don't see the black swan coming.

CompassionateFascist's picture

France + Russia "struck first" in 1914, via the Serbian catspaw. France + England "struck first" in 1939, by way of the backstab war declaration over Germany vs. Poland. It'll happen again, and once again the Germans will get the blame.