Europe Warns EFSF Will Not Reach €1 Trillion, EFSF Yields Remain At Record Wides

Tyler Durden's picture

With the buying frenzy resuming on the lack of "headlines" out of Europe, it bears reminding that while risk on and off will be the theme of the day for a while, the entire Eurozone rescue, with the ECB refusing to participate directly, continues to be predicated on the EFSF and its ability to purchase the hundreds of billions of bonds rolling in the next 12 months from PIIGS, but mostly Italy, and now France. Which is why we are surprised that the news that the EFSF has now officially been "haircut" has not been quite noted. As Reuters reports, "political turmoil in Italy and Greece is complicating efforts to increase the firepower of the euro zone's bailout vehicle to 1 trillion euros, an official at the European Financial Stability Facility said on Friday. Euro zone countries had hoped to increase the EFSF's lending capacity by December, combining bond insurance with investment vehicles. But after the government in Athens fell and bond markets pushed Rome to the brink of a bailout that the euro zone cannot afford to give, the Luxembourg-based EFSF thinks it may be more realistic to aim for less leverage." In other words: kiss the full capacity bailout goodbye. And as the chart below shows, kiss any hope that the EFSF will be able to participate meaningfully in any European "renaissance" - while BTPs and OATs have seen some modest tightening on this "risk on" day, the yield on the EFSF has done absolutely nothing and remaind glued to record wides. 

Reuters with some more on the encroaching math fail:

"The political turmoil that we saw in the last 10 days probably reduces the potential for leverage, so that may be only by three to four times, instead of four to five," the EFSF source said. 


Investors have shunned bonds issued by highly indebted euro zone countries and luring them back by offering insurance on losses, the centrepiece of a plan agreed in Brussels late last month, would probably use up more of the fund's resources. 


After deducting the EFSF's existing emergency funding programmes, the rescue fund has 250 billion euros ($340 billion) to leverage. 


The EFSF says it expects financial markets to improve as Greece appoints a new crisis cabinet and Italy votes on austerity measures demanded by the European Union, taking more dramatic action to reassure investors it can reform its economy. 


But investors were already questioning how the EFSF would reach the 1 trillion euro level -- aimed at helping Italy and Spain if they were shut out of capital markets -- after the Oct. 27 agreement.


The idea of raising the firepower via possible special purpose vehicles financed by sovereign wealth funds and other global investors is in some doubt because of a lack of clarity on incentives for countries such as China or Brazil to invest.


Which means the ball remains in the ECB's court. And like in the US, in order to force the ECB's hand, risk has to sell off, yet the market is now pricing in intervention by both the Fed and the ECB and is sending risk ever higher in a toxic catch 22.

As usual the market will need a few days to process the math. 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
GeneMarchbanks's picture

Market doesn't do arithmetic on holidays, hehe.

Hansel's picture

IMO, the fix for equity markets is in until after New Years.  Keeping the stock market pumped through the holidays is in the 'interests' of the U.S.  If the U.S. can bomb Libya based on 'interests' then they can surely pump the stock market.  :tinfoil:

Harlequin001's picture

This isn't news, I thought the EFSF was having trouble raising more than fifty bucks...

that's about forty euros or somethin'

Zero Govt's picture

Yes but remember Benny pumping the stock markets is "transitory"

His illegal price rigging private bank, The Fed, managed to shaft the Gold price a few weeks ago but Gold is back on the up

Bens policy objectives are transitory, his micro achievements are transitory, Ben is transitory ...only Gold is a constant which transitory Ben keeps bouncing off like a pissed flea

Manthong's picture

US stocks opened higher Friday, advancing for a second straight session, as leaders in Italy and Greece took measures to curb the region's ongoing debt crisis and hopes for a $1 Trillion gift of dilithium crystals from the Vulcans.

ZeroPower's picture

None of this matters, the markets are clearly back in rally mode. Everyone should refresh their minds on how to BTFD last seen from Mar 09 to the 2010 summer. We can see FrAAnce become that, Austria lose the AAA - itll shake out some weak longs and trick the shorts, but the trend is in. Anyone shorting now till year end will be wrong... as disgusting as it is.

RobotTrader's picture

Homebuilders leading the charge.

Beazer up 9% already.

Looks like the lows in housing are in.

High Plains Drifter's picture

hey robo. how are people going to buy houses if they have no jobs?   are they going the liar loan route again?

somethingisrotten's picture

You freaking moron.  Why is it SO PREDICTABLE when you will show up here with your blather?  You have already stated that you do not own any of the garbage that you keep annoying us with.

somethingisrotten's picture

I am now convinced that you are either the anti-Tyler, anti-Christ, or deformed brother of the Squid.

RealFinney's picture

Houses are cheap to build when you loot the materials from rotting McMansions in the desert.

tempo's picture

Nearly 1/3 of the EFSF guarantors/contributors is from Spain/Italy. So the countries that need a bailout are providing the bailout. Man I want to invest. How selfish for pampered, lazy over entitled countries like Italy, Greece and Spain to beg China, India and Korea to bail them out where the average wage for piece work is $5/day. So the rich want the slaves to lower their living standards so the rich don't have to work. How deluded.

High Plains Drifter's picture

paying debts with more debt.  no one has the balls to stand up and say no more and then point fingers. nobody. not one person will do it. everyone is cheaply bought off . they all get along just to get along. nationalism is dead. the land of my fathers is desroyed. 

Dr. Engali's picture

If the market was processing math we would be trading at S&P 400 right now.

AngryGerman's picture

whaaaaattttt? no trillion? ooooohhhh dear! whatever shall we do?

and, my dear efsf, markets to improve? buahahahaha!

go fuck yourself and while i fuck your milf. you cannot bail out shit.

monopoly's picture

Just a bunch of lies, but they make it work short term. Gold looking for 1,800 again? Got gold. 

RobotTrader's picture

Yet another "fakeout shakeout" on the NY Composite.

PigMen took bears to the cleaners again.

Back above the 21-day and 11-day EMA again.

plantigrade's picture

Who remains to fund this EFSF ?

Italy and Spain won't loan to themselves, France is slowly getting on the brink, and the Germans don't want to inflate.

Will the nueva ECB buy the Dreck anyway s'il vous plaît ?

High Plains Drifter's picture

grant said yesterday. they will print...........and so they will.............they have forgotten weimar,

wang's picture
wang (not verified) Nov 11, 2011 10:12 AM

do they have riot cams in Rome and Milan?

perhaps after more vino, the gnocchi were delicious bring on the secondo

RobotTrader's picture

Here's the shocker:

Worst recession since the 1930's

Yet the XRT has had a huge 3-year run and has barely corrected on the weekly chart.

Where's the recession?  We'll it is not in retail stocks at least...

AngryGerman's picture

i like you, you are cute. you are like one of those furry things that talk to you when you push their belly.

EZT's picture

What about operation "Meatball"...

The 100 Trillion Dollar Man's picture

No meatballs. Eat your peas!

oogs66's picture

they don't need efsf now because ECB will just print?

Belarus's picture

Could be the market is discounting the fact that S + P is selling at 11x earnings, with the Fed never having intentions of lifting interest rates as they have boxed themselves in, and that the mother of all stimulus' continues and will continue: 1.5 trillion in UNFUNDED deficit spending. 

Betting on a meaningful downturn at this point is a tough bet. And it will only take a few days for the market to wake up in a few days to realize that the best case downside scenario is 20%--which basically barely wipes away the mother of all rallies in Oct. While the best case scenario will send the S + P 500 over the next year or two to well beyond it's historical high. 

Yeah, I know, someone's got to play the contrarian around here with the hatefest for anything stock related. But even currency wizards believe owning things like railroads is a great call, and the race to the bottom continues regardless of europe.....

In other words, it's a good time to think beyond the few days ZH narrows its focus on methinks, and look beyond the noise. Go long inflation related investments and if you need to sleep at night hedge with puts that'll protect an overall downdraft.


vote_libertarian_party's picture

China would be nuts  to float Europe any bail out money.