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Europe Scrambling To Avoid Subordination Threat

Tyler Durden's picture


It just gets more and more mind-numbing by the moment. The latest from Europe, which earlier confirmed that ESM loans would get preferred creditor status:


Nothing like figuring out your hare-brained bailout attempt was a failure from the beginning. Ok: Here are the problems with this band aid:

  1. Unfunded
  2. Temporary, and eventually will be replaced by the ESM. Markets can, luckily, still discount.
  3. Negative pledge issue still exists as Finland made all too clear. Countries will demand extra security interest while under EFSF regime and until ESM priming comes in play.

Finally, all of this, is just semantics. To quote from SocGen earlier: "If the loans are paid by the ESM, the loans given to FROB will be more clearly senior to SPGBs, though we expect de facto seniority in any case."

Ball is in your court Europe.


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Mon, 06/11/2012 - 10:11 | 2514282 EscapeKey
EscapeKey's picture

I predict a sharp rise in bailout rhetoric.

Mon, 06/11/2012 - 10:13 | 2514294 SilverTree
SilverTree's picture

No pain no gain.

Mon, 06/11/2012 - 10:21 | 2514334 Manthong
Manthong's picture

Meanwhile, in other vicious squeeze news:

“Indian state-owned refiners will halt planned oil imports of 173,000 barrels per day from Iran when European sanctions take effect in July, unless the government permits them to use insurance and freight arranged by Tehran

Mon, 06/11/2012 - 10:22 | 2514342 Chris Jusset
Chris Jusset's picture

I've been to circuses that are better run than these Euro-Ponzi bailouts.

Mon, 06/11/2012 - 10:27 | 2514377 Chief KnocAHoma
Chief KnocAHoma's picture

Wow... Hitler must be kicking himself right about now and saying..."Why didn't I think of that? You can conquer Europe by loaning the lazy money. Brilliant!"




Mon, 06/11/2012 - 10:51 | 2514561 RoadKill
RoadKill's picture

Works in every strategy game Ive plyed too. Loan money at cheap rates. The interest burden slowly erodes the borrowers abillity to fund a millitary and the interest income allows the lender to slowly build a superior force. By the time you get to bankrupcy one side has 30 year old muskets held by prisoners and the other side has the highest technology tanks and planes. So the borrower cant default without surrendering land.

Mon, 06/11/2012 - 10:14 | 2514284 the not so migh...
the not so mighty maximiza's picture

setting sail for the bailout fail; time for a new telephone conference.

Mon, 06/11/2012 - 10:12 | 2514287 DaveyJones
DaveyJones's picture

Ironic Statement of the Year Award:

"The future of the Euro and our banking system all won new credibility yesterday"

- Mariano Rajoy, Spanish PM  

Mon, 06/11/2012 - 10:54 | 2514566 HarryM
HarryM's picture

last sentence should be "Balls are in your  face,Europe." 

Mon, 06/11/2012 - 10:12 | 2514288 fonzannoon
fonzannoon's picture

They need a summit. ASAP. Sometime in August should work.

Mon, 06/11/2012 - 10:28 | 2514376 stocktivity
stocktivity's picture

Yes...another "summit". 5 star hotels, 7 course meals, in a luxury setting so they could concentrate, and all on the tax payers dime. Maybe 2 or 3 "summits" are needed this summer.

Mon, 06/11/2012 - 10:33 | 2514424 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

quick, call the caterer, lets see whats on the menu.

Mon, 06/11/2012 - 12:03 | 2514959 DaveyJones
DaveyJones's picture

He suggests the hors d'oeuvres be something called soylent

Mon, 06/11/2012 - 10:33 | 2514428 LULZBank
LULZBank's picture

It has to look important, no?

Mon, 06/11/2012 - 11:19 | 2514699 Alpacanio
Alpacanio's picture

Oh, don't worry. Many more summits will come.

Mon, 06/11/2012 - 10:34 | 2514436 Nobody For President
Nobody For President's picture

Dummits at a summit. Yep, that should work.

Mon, 06/11/2012 - 10:13 | 2514289 Zola
Zola's picture

this kind of has a 2008 feeling to it

Mon, 06/11/2012 - 10:18 | 2514314 SilverTree
SilverTree's picture

2008 x 100

Mon, 06/11/2012 - 10:36 | 2514441 Chief KnocAHoma
Chief KnocAHoma's picture

Now now... don't everyone shit the bed... after all... Bernanke is on it.

Okay... now shit the bed!



Mon, 06/11/2012 - 10:13 | 2514291 Alpo for Granny
Alpo for Granny's picture

All your hare-brained bailouts are belong to us.

Mon, 06/11/2012 - 10:13 | 2514293 pleseus
pleseus's picture

Like trying to put a fire out with gasoline

Mon, 06/11/2012 - 10:14 | 2514295 Barry McBear
Barry McBear's picture

I don't think the EU appreciates you dismembering their plans so quickly Tyler. 

Mon, 06/11/2012 - 10:26 | 2514369 Sockeye
Sockeye's picture

No kidding! (Cause their plans were oh so solid to begin with!)

Mon, 06/11/2012 - 10:14 | 2514299 LULZBank
LULZBank's picture

Rajoy, that crybaby face? Is it since birth or just after needing bailouts?

Mon, 06/11/2012 - 10:14 | 2514301 Dr. Engali
Dr. Engali's picture

What a bunch of ass clowns. I would like to know what is keeping the Euro from just collapsing with these fools running the joint.

Mon, 06/11/2012 - 10:17 | 2514313 the not so migh...
the not so mighty maximiza's picture

never thought i would think it but we might be insulting ass clowns now.

Mon, 06/11/2012 - 10:18 | 2514324 Dr. Engali
Dr. Engali's picture

You've got a good point there.

Mon, 06/11/2012 - 10:23 | 2514344 DaveyJones
DaveyJones's picture

true, at least their job description is honest

Mon, 06/11/2012 - 10:19 | 2514327 Al Gorerhythm
Al Gorerhythm's picture

It stays afloat because it is measured in that basket of turds known as currency against that supreme turd, the US dollar. They're floaters. When you float one turd you float the rest. You just can't keep a good turd down.

Mon, 06/11/2012 - 10:15 | 2514302 Al Gorerhythm
Al Gorerhythm's picture

Nothing of substance to see here. Move along.

Mon, 06/11/2012 - 10:16 | 2514305 RobotTrader
RobotTrader's picture

NEM down 74 cents

GLD down 76 cents

JPM flat

That pretty much says everything.

Mon, 06/11/2012 - 10:19 | 2514319 EscapeKey
EscapeKey's picture

Yes, of course it does.



IBEX 35 Index

current: 6,613

day high: 6,940



Mon, 06/11/2012 - 10:20 | 2514331 old naughty
old naughty's picture

...until they back-handed the "Ball" out. Then...

Mon, 06/11/2012 - 10:21 | 2514332 DaveyJones
DaveyJones's picture

yes, two seconds in a world of cataclysm

Mon, 06/11/2012 - 10:17 | 2514306 WaEver
WaEver's picture

Who are the experts assisting the euro decision makers : kermit and gonzo ?

Mon, 06/11/2012 - 10:28 | 2514379 old naughty
old naughty's picture mean the Ivy Leaguers?

So Kermit and gonzo...They become muppets.


Mon, 06/11/2012 - 10:38 | 2514463 Nobody For President
Nobody For President's picture


Mon, 06/11/2012 - 10:47 | 2514526 EscapeKey
EscapeKey's picture

Now I wish it was Gonzo and Kermit.

Mon, 06/11/2012 - 10:16 | 2514308 Village Smithy
Village Smithy's picture

It's amazing what you can get away with when you are TBTF.

Mon, 06/11/2012 - 10:18 | 2514320 the 300000000th...
the 300000000th percent's picture


Mon, 06/11/2012 - 10:18 | 2514321 Bansters-in-my-...
Bansters-in-my- feces's picture

"More Cow Bell...!!!!

Mon, 06/11/2012 - 10:31 | 2514409 junkyardjack
Mon, 06/11/2012 - 10:19 | 2514322 percyklein
percyklein's picture

What is the matter with  these people?

Mon, 06/11/2012 - 10:21 | 2514340 Al Gorerhythm
Al Gorerhythm's picture

They're sociopathic kleptocrats. They're entitled. They're enlightened. We need a benevolent dictator.

Mon, 06/11/2012 - 10:23 | 2514343 LULZBank
LULZBank's picture

Lack of sex, apparently as they constantly need to bailout.

Mon, 06/11/2012 - 10:19 | 2514328 spanish inquisition
spanish inquisition's picture

I was a bit surprised the Spanish bailout happened so FAST (market closed, we need money, here it is). I gotta think the fear index is pretty high before the Greek elections.

I will predict that the Italian bailout will be announced BEFORE they ask for it to help smooth out the new cycle.... (in fact, they may already have the money haha)

Mon, 06/11/2012 - 10:24 | 2514347 Al Gorerhythm
Al Gorerhythm's picture

They just use the script from greece and pass it on to the next set of technocrats. "Hey, this worked for us! Try it out on your flock."

Mon, 06/11/2012 - 10:20 | 2514330 mayhem_korner
mayhem_korner's picture



I could go to the local elementary school and watch the second-graders fight about who gets to be first in line...this is better.  Pop some corn!

Mon, 06/11/2012 - 10:21 | 2514336 Freebird
Freebird's picture

Apart from the incompetence, negligence, confusion, bullshit & general ambiguity, anyone know how delayed an ECB process is due to the need to translate all documents into a zillion different languages. Lol

Mon, 06/11/2012 - 10:24 | 2514348 sudzee
sudzee's picture

Soon to be posted worldwide:

Posted sign in the Federal passport office in Toronto:

"CASH is no longer an acceptable method of payment".

I should have taken a picture.

Mon, 06/11/2012 - 10:24 | 2514350 Freebird
Freebird's picture

Apart from the incompetence, negligence, confusion, bullshit & general ambiguity, anyone know how delayed an ECB process is due to the need to translate all documents into a zillion different languages. Lol

Mon, 06/11/2012 - 10:24 | 2514355 eclectic syncretist
eclectic syncretist's picture

It's all about a few individuals in the various governments waking up and coming to the realization that the central banks are about to own them, just like Thomas Jefferson warned two centuries ago.

They've been operating under the premise that the banks are their friends, but now their interests are diverging, and chaos is ensuing.  Personally, I love a good bit of chaos, and find it quite entertaining, but I hope everything turns out OK in the end and the banks don't end up engineering another war.

Mon, 06/11/2012 - 10:27 | 2514378 AbbeBrel
AbbeBrel's picture

Hey what is the breakdown on Spanish law bonds (LUUUZEERRS) vs. UK law bonds (complex Hedge Fund bets may apply now)?      "You are in a maze of twisty little passages, all alike"  (there that dates me!!!)  - AB

Mon, 06/11/2012 - 10:29 | 2514386 insanelysane
insanelysane's picture

Then the ESM tool can never be used so it really isn't a solution to anything?

Mon, 06/11/2012 - 10:31 | 2514410 blindman
blindman's picture

there is obviously no solution to this fraud
of finance otherwise the genius snow monkey
mind would have already solved it and the
precise steps needed would by now be in the works.
therefore the next step is to discover and prosecute
the fraud. q.e.d..
An abbreviation of the Latin phrase "quod erat demonstrandum". It literally translates as "which was to be demonstrated", and is a formal way of ending a mathematical, logical or physical proof. It's purpose is to alert the reader that the immediately previous statement, which naturally was arrived at by an unbroken chain of logic, was the original statement that we were trying to prove.

"I refuse to prove that I exist," says God, "for proof denies faith, and without faith I am nothing."
"But," say Man, "the Babel fish is a dead giveaway, isn't it? It could not have evolved by chance. It proves you exist, and so therefore, by your own arguments, you don't. QED."
"Oh dear," says God, "I hadn't thought of that" and promply vanishes in a puff of logic." -- Douglas Adams, from "A Hitchiker's Guide to the Galaxy"

Proof that x + 3 = 0 if x = -3

x + 3 = (-3) + 3
= 0

Mon, 06/11/2012 - 10:32 | 2514419 SmoothCoolSmoke
SmoothCoolSmoke's picture

Greeks will have their hand on detonation plunger on Sunday.   Well played Greeks.

Mon, 06/11/2012 - 10:35 | 2514433 GCT
GCT's picture

ZH called the subordination on Greece and it played out as Tyler stated.  Spain will end up the same way.  The eurocrats will bail, bail, print, print, and just before the scheme fails the ECB will swoop in and subordinate all investor debt with the exception of English law bonds.  This time though those with the english bonds will not be giving them back like some did with Greece.  Notice how Greece is paying the english law bonds. 

This propaganda if you had any brain at all you will not invest in Spanish bonds and watch it play out this time.  But then there is a sucker born every minute.

Mon, 06/11/2012 - 10:38 | 2514461 ThisIsBob
ThisIsBob's picture

Check is in the mail.

Mon, 06/11/2012 - 10:44 | 2514508 Nobody For President
Nobody For President's picture

I must have this wrong. Everybody is talkin' about the ESM like it is a done deal that is gonna happen Real Soon Now, but my understanding is that Germany (cough) has not approved the ESM yet. 

And there is some rumbling they may not approve it.


Mon, 06/11/2012 - 11:23 | 2514730 Nobody For President
Nobody For President's picture

Thanks, don't know how I missed that particular article - busy this morning.

Thanks again Tyler for allowing me in the house...

(Two pair of black pants, two black shirts, one pair black boots and $300 burial expenses.)

Mon, 06/11/2012 - 10:45 | 2514509 RoadKill
RoadKill's picture

Guys dont get fooled. This is a LIE.

Remember Greek bailouts are under ESFS and they werent senior to privately held debt till DAYS before the PSI.

The fact is the ESFS and ESM cant afford a jump in rates forcing Spain and Italy to accept full bailouts of their deficit spending.

But Germany and the ECB cant afford to take PSI. NOR should they. These are DIP financings of bankrupt entities.

China would do the same to the US (demand seniority for new debt) EXCEPT US Fed can monetize (buy the debt) driving inflationary riots in China, the Senate can retaliate with trade embargoes and our millitary could whoop China. None of this is true for Spain and Italy vs Germany and the rest of Europe.

Soprivately held debt WILL be subordinated to ALL ECB/ESFS/ESM debt regardless of what they say today.

Mon, 06/11/2012 - 10:50 | 2514522 youngandhealthy
youngandhealthy's picture


from the treaty text:

In the event of ESM financial assistance in the form of ESM loans following a European financial assistance programme existing at the time of the signature of this Treaty, the ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans.

(Caugh Germany has not approved yet, caugh)


Mon, 06/11/2012 - 10:47 | 2514537 Byte Me
Byte Me's picture

Have you heard the one about the Currency Union that walked into a bar??

(everyone fell about laughing..)

Mon, 06/11/2012 - 10:48 | 2514539 RoadKill
RoadKill's picture

Btw English law bonds will all be gone by end of week. The smart funds were buying LAST 2-3 weeks after Greece paid theirs out.

Mon, 06/11/2012 - 10:59 | 2514601 MeanReversion
MeanReversion's picture

These geniuses don't realise what an incredibly bad structure the ESM is.  The ESM is unusable for any core European country because once its used, yields will spike to unmanageable proportions, creating a downward spiral that only pure monetization could (temporarily) forestall.



Mon, 06/11/2012 - 12:09 | 2514996 Nobody For President
Nobody For President's picture

You got that right, and it seems pretty obvious to most ZH'ers - so how the hell come 17 fin mins in the EU can't figure this out? Seems there are three possibilities here:

1. The fin mins are arrogant, clueless, ivory tower appointed career politician/economists with a futurity quotient of zero, or

2. The fin mins are old money rich Eurocrats who have theirs, screw you, just puttin' in time till retirement meanwhile let's have lunch, or

3. The fin mins are part of a really, really brilliant cabal that is actually planning all this, and knows that ESM loans that subordinate soverign debt will more rapidly lead to the one world, or at  least one Euro, gubernmint.

I honestly don't know which is closest to the truth, or reality, or whatever that is going down in Europe right now. The whole Spailout seems to be so poorly thought out and generally half-assed as to boogle the mind - basically DOA, yet all these financial ministers from the major European countries went for it. WTF? I may be catching up to Cognitive Dissonance (best handle in the place). Could be that not understanding WTF is going on is the start of understanding WTF is going on: - maybe, just maybe, none of these so-called deciders has a god damned clue and they are all just winging it - badly.

But I'm probably wrong about all of this. 

Mon, 06/11/2012 - 11:33 | 2514764 Cone of Uncertainty
Cone of Uncertainty's picture

So in other words: Gold is the muther fucking kingpin, top shelf, bad ass, harden the fuck up, widow maker, big willy, head honcho, numero uno, piece de resistance, mac daddy, real asset of first, second, and last and only resort now and into the future for all fucking eternity.

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