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Europe: "€1 Trillion May Not Be Enough"

Tyler Durden's picture




 

A core piece of last week's European newsflow was that following much pushback, Angela Merkel, who understands the underlying math all too well, finally dropped her opposition to expanding the European "firewall" in the form of a combined EFSF and ESM rescue mechanisms, to bring the total "firepower" to €800 billion (ignoring for a moment that when the true dry powder of the combined vehicle is just about €500 billion net as explained here, hardly enough to rescue Spain, let alone Italy). Yet as has been explained here repeatedly, and as Merkel has figured out, this is easily the most symbolic expansion of a rescue facility ever. Because while the ECB's agreement to allow Eurobanks to abuse its €1 trillion discount window for three years (which is what the LTRO is), following the replacement of JC Trichet with a Goldman apparatchik, at least infused the system with $1.3 trillion in new fungible liquidity (and resulted in a stock market performance boost for the ages, one which is now unwinding), the 'firewall" does not represent new money, nor is a "firewall" to begin with - it is merely one massive contingent liability which will remain unfunded in perpetuity. Slowly the German media is waking up, and in an article in Der Spiegel, the authors observe that "Even a 1-Trillion Euro Firewall wouldn't be enough." And they are correct, because the size of the firewall is completely irrelevant, as explained later. All the "firewall" does is shift even more backstop responsibility on the only true AAA-country left in the Eurozone, Germany. However, the main cause of problems in Europe - a massive debt overhang which can at best be rolled over but never paid down due to the increasingly lower cash flow generation of Europe's (and America's) assets, still remains, and will do so until the debt is finally written down. However, it can't because one bank's liability is another bank's asset. And so we go back to square one, which is that the system is caught in the biggest Catch 22, as we explained back in 2009. We are glad to see that slowly but surely this damning conclusion is finally being understood by most.

From Spiegel:

European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small.

 

Austrian Finance Minister Maria Fekter announced on Friday that the permanent euro rescue fund, the European Stability Mechanism (ESM), would be expanded, by considering the around €200 billion in current bailouts as being separate from the €500 billion earmarked for the ESM -- originally, the €500 billion figure was to have included the €200 billion in existing aid. The ESM, which is due to come into operation in mid-2012, will also be boosted by including around €100 billion in bilateral aid that was given to Greece in 2010, as well as aid from other EU funds, bringing the firewall's total capacity to over €800 billion.

 

Fekter expressed her confidence that Friday's move would be enough to calm the financial markets. "The markets are already signaling relative calm," she said. "That shows that the markets can work with what we have set up here."

 

The Nuclear Option

 

On Thursday evening, in the run-up to Friday's summit, German Finance Minister Wolfgang Schäuble had said he was prepared to combine the existing bailouts with the new permanent mechanism. He said that the €800 billion capacity was "convincing" and "sufficient."

 

But not everyone shares his view that the sum is enough. On Thursday, French Finance Minister François Baroin called for the permanent euro bailout fund to be increased to €1 trillion, to shore up market confidence and prevent contagion in the euro crisis. "The firewall, it's a little like the nuclear option in military planning, it's there for dissuasion, not to be used," Baroin said in a radio interview. He was echoing calls made by the Organization for Economic Cooperation and Development (OECD) earlier in the week to boost the firewall to €1 trillion.

The German press is also finally starting to wake up:

The center-right Frankfurter Allgemeine Zeitung writes:

 

"It is to be doubted whether all members of the Bundestag actually understand the financial dimension and the technical details of the ESM. It doesn't help matters that the federal government has repeatedly shifted its position on this issue -- as the SPD's floor leader Frank-Walter Steinmeier rightly pointed out."

 

"But the entire euro rescue is a balancing act. On the one hand, fiscal discipline needs to be promoted. The pressure on the crisis-stricken euro-zone members to carry out reforms must not be undermined by the knowledge that, if they fail, they will be caught by a financial safety net. On the other hand, there is the need for solidarity. Those countries that are in a better position can 'help the others to help themselves,' as Schäuble put it."

 

"As always in the EU, these things lead to compromises in practice, which also explains why the government has readjusted its position on the ESM. The high ratings that Merkel enjoys in the polls may be related to the fact that the Germans seem to intuitively understand this delicate maneuver."

 

The left-leaning Die Tageszeitung focuses on the calls to boost the ESM to €1 trillion:

 

"A trillion! That's how much money France is now demanding for the euro rescue fund. Until now, Chancellor Angela Merkel only wanted to come up with €700 billion. On the surface, it looks as if a Franco-German showdown is on the horizon. In fact, it is nothing more than a PR battle, where nothing is really new. It was already clear last summer that the existing EU rescue fund, the EFSF, was much too small to save Italy or Spain in an emergency. Even then, people were talking about €1 trillion as a target."

 

"One trillion euros is a lot of money, and yet even this huge sum will not be enough. But again, that's nothing new. For months, calculations have been doing the rounds that show that at least €1.5 trillion will be needed. The only interesting question left is how long it will take France and Germany to acknowledge this reality."

The last observation is off on the right track but is nowhere near close enough to the true conclusion, which was stated here yesterday by Mark Grant:

The Firewall Lie

 

Whether some proposed firewall is $760 billion or $1.3 Trillion or $13 Trillion makes no difference as in zero, nada, nothing and null. It is an IOU, a promise to pay and it is not counted in any European sovereign debt numbers nor is it counted in the figures for the European Union’s debt. It will not stop Spain or Portugal or Italy from asking for or needing money. It will not stop contagion nor will it protect any nation from the calamities of another nation. If approved by the Finance Ministers it is not approved by the European Parliaments and even if approved; it accomplishes nothing besides one more unaccounted for contingent liability that is nowhere to be found on anyone’s books. This whole discussion is a head fake, a deception and a ruse carefully plotted out for investors in one more attempt to mislead the entire world. If you wish to be a statistic in the Greater Fool Theory be my guest but I refuse to be apart of this unadulterated scam.

In other words, the next time a crisis flares up, the only thing that will delay the unwind, as the LTRO 1 and 2 did in late 2011, is another fresh injection of liquidity, whether in exchange or not for worthless collateral which was unused to begin with, as only new money can delay the unwind.

Of course, with every new trillion in incremental cash, now that central bank balance sheets are growing exponentially, more and more is now spilling over into hard assets, despite a clogged monetary transmission mechanism. The longer Europe's farcical crisis continues, the more the status quo will have to fight tooth and nail to prevent an explosion in hard asset prices expressed in fiat. This is a fight they will lose.

 

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Sat, 03/31/2012 - 20:13 | 2307006 Yen Cross
Yen Cross's picture

 Any Time/ Any where ,  I got your back!

Sat, 03/31/2012 - 19:11 | 2306925 Yen Cross
Yen Cross's picture

  Wide  ( BID/ASK)    But it's EBS quotes. ozforex

Sat, 03/31/2012 - 19:42 | 2306959 dcb
dcb's picture

I blieve markel never was opposed, but it was an act for the electorate, and all of this was a forgone conclusion. Besides Iceland name a western country that hasn't given the banksters all they want. If it appears they won't they are removed from office. When you vote in someone anti bank once elected they change. Please giove me a break.

Sat, 03/31/2012 - 20:10 | 2307000 slewie the pi rat
slewie the pi rat's picture

dcb, you are a fkcing genius, if only other readers and the GERMAN folk had the same wake UP CALL

+1

Sat, 03/31/2012 - 20:09 | 2306996 Yen Cross
Yen Cross's picture

 Why do I pay for a " BloomBerg" Terminal?

                Tyler is 2 steps ahead
Sat, 03/31/2012 - 20:15 | 2306999 LouisDega
LouisDega's picture

Chief Brody's famous bigger boat biotchezz

Sat, 03/31/2012 - 20:16 | 2307013 Yen Cross
Yen Cross's picture

Ghordius ) knows it's place in this thread!Q

  I'm dumb/ sometimes! 

Sat, 03/31/2012 - 20:44 | 2307047 Yen Cross
Yen Cross's picture

 That Cleft -c  or ¥

Sat, 03/31/2012 - 20:56 | 2307056 Yen Cross
Yen Cross's picture

 Well! The market is priced in.  It's riding that trend line.

Sat, 03/31/2012 - 21:03 | 2307063 Yen Cross
Yen Cross's picture

  Some Day?

Sat, 03/31/2012 - 21:18 | 2307072 SumSUN
SumSUN's picture

Paid $1701 Canadian for a one troy ounce gold bar today.  Also bought five silver eagles and twenty silver maples.  :)

Sat, 03/31/2012 - 21:22 | 2307078 oldman
oldman's picture

@Yen Cross, slewie the pi-rat, and Ghordius,

Thanks, lads

for a delightful hour---just like old times on this thread

made an oldman's day and night                       om

Sat, 03/31/2012 - 21:50 | 2307102 Yen Cross
Yen Cross's picture

OLD MAN / Yea Right!

  As I postulate my 46th Birthday!

        Albeit I look 35!

Sat, 03/31/2012 - 23:25 | 2307185 oldman
oldman's picture

HAPPY BIRTHDAY, YEN CROSS !!!!

And all of those to come                     om                 

Sun, 04/01/2012 - 18:53 | 2307189 ekm
ekm's picture

46 yrs young. Happy birthday.

Do not forget: Every day is better than the previous day.

Sun, 04/01/2012 - 11:18 | 2307573 slewie the pi-rat
Sat, 03/31/2012 - 22:25 | 2307132 ISEEIT
ISEEIT's picture

So, I'm a rude alcoholic pig?

Cute and fancy (impressive as well) use of language aside, I submit that you 'blokes'  are tactfully a bunch of front loaded poseurs.

I will not say 'the word'.

You should 'ponder' the term 'poseur'

Might help?

Now I'm 100% in

No, I just got scared(ed).

Jesus, someday can we just talk?

Sat, 03/31/2012 - 22:32 | 2307136 Yen Cross
Yen Cross's picture

Gold Chains work well.   They clash with my 599 gto. The c-posts/ carbon fibre.

   I'll trade for a 458 Italia / spyder

Sat, 03/31/2012 - 22:27 | 2307134 Tom Green Swedish
Tom Green Swedish's picture

What good will rising interest rates do in America? It will just cause more trouble.  Oil consumption is decreasing while production is increasing in the USA, all the while cars are getting more efficient and electric cars are coming out.  The USA has enough coal and energy to last forever.  At this point we are doing the Middle East a favor. They'll be paying through the nose for food in 4 years and we will reclaim every last dollar and more we gave those people.  They have no water and no food, and for the most part neither does China or India.

 

I'm sorry it takes $133 dollars to fill up your car, but you are a European and you have no resources.  It will only get worse for Europe sorry to tell you.  The USA is in no jeopardy.  The BRICS are all slowing down.

 

http://www.youtube.com/watch?v=e59rh3EV4gk

Sat, 03/31/2012 - 22:34 | 2307137 ISEEIT
ISEEIT's picture

And hey, before I go to sleep?

I honestly give less than a rat's ass about your 'skin' color.

These shitty clowns who 'earn' a living pimping you?

Fuck 'em.

Please.

I want to respect you.

Sat, 03/31/2012 - 22:38 | 2307141 Yen Cross
Yen Cross's picture

  Being Human, 2and 1/2  men reruns/ A little(fox BS)

   History channel/ Discovery, 

                                           I'm whole.

Sat, 03/31/2012 - 22:54 | 2307153 Yen Cross
Yen Cross's picture

 I bought a 928 s and a 89 ( 911 Turbo)  Back in the mid (90's). That was when Ferrari was thRUST UPON ME!

    It was all  ( down hill) from there!

 

 

 

 

 

 

 

 

0.

Sat, 03/31/2012 - 23:29 | 2307187 ekm
ekm's picture

Ferrari is not a car.

Every Ferrari is a piece of art. Please make sure you DO NOT use words like "thrust" or "rust" for art pieces.

My buddy at the gym has two Ferrari. They are so beautiful.

Sun, 04/01/2012 - 12:06 | 2307628 Winston Churchill
Winston Churchill's picture

Ditto,but 80's.

Sat, 03/31/2012 - 22:57 | 2307156 KickIce
KickIce's picture

E Trade baby's suprised face.  Might as well start associating this to all of Tyler's blogs.

www.youtube.com/watch?v=HqVBKO_QM3o

 

Sat, 03/31/2012 - 23:19 | 2307181 Yen Cross
Yen Cross's picture

 It was, as I said it would be!

Sat, 03/31/2012 - 23:39 | 2307193 monopoly
monopoly's picture

Off topic. Tyler is going to shit when he sees this, if he already hasn't.

NYTimes..

 Financiers and Sex Trafficking

This emporium for girls and women — some under age or forced into prostitution — is in turn owned by an opaque private company called Village Voice Media. Until now it has been unclear who the ultimate owners are.

Backpage.com.

That mystery is solved. The owners turn out to include private equity financiers, includingGoldman Sachs with a 16 percent stake.

But noone here is surprised.

 

 

Sat, 03/31/2012 - 23:48 | 2307212 Son of Loki
Son of Loki's picture

"If I can please have another $3 trillion by Christmas, I, my kids and my wife would really be happy."

Sincerely,

Bank President, Anywhere EU

Sun, 04/01/2012 - 00:36 | 2307258 the 300000000th...
the 300000000th percent's picture

Not enough???? Are you fing kidding me??? There is NEVER enough DEBT to get you out of a DEBT crisis. Did they need ME to let them in on that little secret. God save us all, eventually we will all be f*cked.

Sun, 04/01/2012 - 00:41 | 2307260 Teamtc321
Teamtc321's picture

"There is but one power in Europe, and that is Rothschild." - Werner Sombart 1841, French Journalist 

"Money is the god of our time, and Rothschild is his prophet." - Heinrich Heine 

"The Rothschilds have conquered the world more thoroughly, more cunningly, and much more lastingly than all the Caesars before..." - Author Frederic Morton 

"Who controls money controls the world." - Henry Kissinger 

"Those who create and issue money and credit direct the policies of government and hold in the hollow of their hands the destiny of the people." - Reginald McKenna (1863-1943) British Chancellor of Exchequer 

"The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators was probably the prime cause of the revolution." - Benjamin Franklin 

"The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III was the prime reason for the Revolutionary War." - Benjamin Franklin 

"This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President (Woodrow Wilson) signs the Bill, the invisible government of the Monetary Power will be legalized... The worst legislative crime of the ages is perpetrated by this banking and currency Bill." - Congressman Charles A. Lindbergh Sr. 

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men." - Woodrow Wilson, reflecting on passage of the Federal Reserve Act 

"A little group of willful men, representing no opinion but their own, have rendered the great government of the United States helpless and contemptible." - Woodrow Wilson 

"Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States." - Barry Goldwater 

Sun, 04/01/2012 - 01:51 | 2307288 Sandmann
Sandmann's picture

Get Modern and out of the past - read

http://treasureislands.org/

and see how BRITAIN is the centee of the global Offshore Banking System circumventing all regulation with pools of capital and lax regulation - a maelstrom absorbing MF Global and all the wild capital flows and dodgy deal. LONDON is the onshore office space for its Offshore Financial Empire

 

Sun, 04/01/2012 - 05:31 | 2307355 Colonial Intent
Colonial Intent's picture

As a citizen of landing strip one i agree.

Sun, 04/01/2012 - 15:05 | 2307946 Sandmann
Sandmann's picture

Airstrip One surely, if you follow Orwell ?

Sun, 04/01/2012 - 01:49 | 2307287 Sandmann
Sandmann's picture

The deals Merkel signs up to have no exit clauses and seem to lash Germany to the wheel as the ship heads for the rocks. She is headed for destruction. Her Coalition Partner FDP just blocked support for Schlecker Workers facing redundancy - so while they are prepared to bail out Banks via Greece they throw ordinary drugstore workers onto the dole and prevent an orderly liquidation of the Schlecker business. So clearly Welfare for Bankers but Povertty for People

Sun, 04/01/2012 - 06:48 | 2307389 GeneMarchbanks
GeneMarchbanks's picture

What did you expect?

Sun, 04/01/2012 - 01:55 | 2307291 Poor Grogman
Poor Grogman's picture

The greatest achievement of the money masters is to operate in such a way that their actions are mostly hidden or just simply shrugged of by the majority of people.

This simple fact alone Indicates a level of planning and cunning that is almost. unimaginable to the average person.

Sun, 04/01/2012 - 03:39 | 2307317 blindman
blindman's picture

quantities are potentially infinite while quality is
personal, it is getting personal this business
of monetizing notional "value" of derivatives with
virtual underlying , it is systemically and personally
offensive and terrible.

Sun, 04/01/2012 - 04:21 | 2307328 Hedge Fund of One
Hedge Fund of One's picture

"A core piece" or "the cod piece"?

:-)

Sun, 04/01/2012 - 05:50 | 2307359 magpie
magpie's picture

Imperial Spain got away with two defaults before being curbstomped. Not that today's Spain should be inspired.

Sun, 04/01/2012 - 08:52 | 2307455 Arnold Ziffel
Arnold Ziffel's picture

CTRL+PRINT is limitless, yes?

Sun, 04/01/2012 - 11:57 | 2307619 Salah
Salah's picture

Gary Johnson, Iron-Man Triathlete, high-tech services entrepreneur, and former 2-term governor of New Mexico, now ex-GOP running for President on the Libertarian ticket will be Stephen Colbert's guest on Monday, April 2nd.

http://www.garyjohnson2012.com/front

Sun, 04/01/2012 - 12:23 | 2307666 icanhasbailout
icanhasbailout's picture

how much is a brazilian?

Mon, 04/02/2012 - 00:39 | 2308875 jonjon831983
jonjon831983's picture

Germany: Ok, we'll do this... for this list of concessions and collateral.

France et al: Ok... surreee here you go.

Things fall apart for the EU.

Germany: wtf! You screwed us! Give our money back and the collateral owed. Or else.

Do NOT follow this link or you will be banned from the site!