European Bailout Time Of Death: EFSF Cut In Half Due To "Market Conditions"

Tyler Durden's picture

If only we had known that the EFSF was nothing but the latest Chinese reverse merger IPO gimmick, dependent entirely on market conditions for its success, we probably would have sold even more euros to Thomas Stolper. Alas, despite all the pomp and circumstance of last month's European summit announcement when the 50% Greek debt haircut (which has a snowball's chance in hell of passing) was accompanied by vague promises of a 4-5x leveraging of the EFSF's €440 billion, it now appears that our original skepticism was well-founded. Because according to the latest news out of the FT, the EFSF won't get 4-5x leverage. Nope. It will, in fact be lucky if it can be doubled, which however kills the whole point as it needs to be well over €1 trillion to even exist. From the FT: "A plan to boost the firepower of the eurozone’s €440bn rescue fund could deliver as little as half what the bloc’s leaders had hoped for because of a sharp deterioration in market conditions over the past month, according to several senior eurozone government officials." Well what do you know. Next we will learn that when the EFSF denied it was an outright pyramid scheme, and was buying its own bonds, it was actually kidding. Either way, as it currently stands, there is no bailout in place for Europe whatsoever, as the ECB's demands for a fallback to the ECB are now moot. Furthermore, once the market realizes there is no even implicit backstop to the trillions in debt rollover over the next several years, it will dump sovereign bonds with even more gusto, pushing Europe into an even deeper funding crisis, which in turn will make bond repayment even more impossible, which will send prices even lower, and so on. There is a reason they call it a toxic debt spiral.

From the FT:

The dramatic spike in borrowing costs for Italy since the summit is likely to force the European Financial Stability Facility to sweeten the deal offered to investors, which will limit the number of bonds the insurance would cover.


Klaus Regling, head of the EFSF, earlier this month said that overcoming investor concerns with improved guarantees would mean the fund was likely to have only three to four times the firepower – an admission that underlined the challenge European leaders face in steadying sovereign debt markets.


But three senior eurozone officials said even this lower target may be difficult to reach, and expect the eventual firepower to be between two and three times the remaining buying capacity of the fund. “It is falling well short of its billing,” said one. Concerns over leverage will be a key item on the agenda of eurozone finance ministers meeting on Tuesday.


These officials are also pessimistic about the prospects of a second source of leverage, a co-investment vehicle designed to entice investors from emerging markets. One said the idea was given a such a tepid reception by China and Brazil that is may struggle to amass funds.

Time for another summit:

Leveraging the EFSF’s dwindling resources was the main element of a grand plan unveiled in October to create “firewalls” that stop fallout from Greece spreading to European banks and its largest economies, particularly Italy.


But the rise in Italian and Spanish borrowing costs to painfully high levels has underscored the severity of the crisis and reopened the debate over more radical alternatives to boost the clout of the rescue fund. An added worry is the risk of a possible French downgrade, which would significantly sap the strength of the EFSF, as the fund is built on guarantees from “AAA” rated countries.


Alternative options include fresh guarantees or injections of money, the use of the EFSF as a bank, or steps to bring forward the European Stability Mechanism, Europe’s permanent bail-out fund, so that it runs alongside the EFSF instead of immediately replacing it.


Given the highly volatile markets and uncertainty over future European Central Bank interventions, it is almost impossible to predict the value of bonds the EFSF will eventually be able to insure.

Of course, none of these "options" will have any credibility absent the arrival of the ECB cavalry, which as of today we know is going nowhere... fast.

As for the EFSF's failure, it was obvious the bailout mechanism was dead when its yield was trading at well below AAA levels, as first reported here two weeks ago.

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Chris Jusset's picture

The fat lady has started to sing ...

WonderDawg's picture

She's at least finishing the final rehearsal.

Ahmeexnal's picture

Nobody with a lucid mind would consider investing in the eurozone. Even investing in Zimbabwean bonds is better. Zimbabweans are not lying deceiving thieves like the ECB.

Richard Chesler's picture

three senior eurozone officials

Curly, Larry, and Moe?


Chris Jusset's picture

"Curly, Larry, and Moe?"

Or perhaps Dumb, Dumber, and Dumbest

Harlequin001's picture

Well it looks now like the Fed is completely fucked. When this money comes out of collapsing euro bonds and heads straight into commodities (because yields on US paper are far too low for soon-to-be-defaulted debt), it will head into commodities and bingo, big time inflation.

The Fed's only hope is for the gold market s to absorb this money and soar, so that food prices don't explode, otherwise we are all toast...

Except those that hold physical bullion, that is...

They just get incredibly rich...

ThatThatcher's picture

I spent some time in Zimbabwe and I'm not sure I entirely agree with this. Though, the ECB wear suits which makes them more deceptive.......

The Big Ching-aso's picture


...while she's embellishing her vibrato with enormous German farts.


Popo's picture

Looks like Black Friday will be Blood Red.

The Big Ching-aso's picture



If we're witnessing history in the making I just hope making history doesn't kill us all.

spankfish's picture

Thats calorically challenged women.  PC a must.

Never1's picture



Not sure If I should cry or laugh... my puts might be happy.. but if the whole thing collapses, then they'l be worth about as much as my calls.

Chris Jusset's picture

Here comes the toxic debt spiral ...

TruthInSunshine's picture

I wonder who gets to circle the drain this time around?

kito's picture

Lots of circling for the system but that drain seems to be elusive

redpill's picture

If market conditions were good, they wouldn't need a pretend-economics "super fund" to begin with.

Reality is like a mentally unstable and vindictive girlfriend: you can ignore them for a time, but the longer you wait the worse it gets and eventually you'll wake up in the middle of the night only to see the crazy bitch staring at you with a pair of bloody scissors in one hand and what appears to be a loaded chili dog in the other as she recites lines from Breakfast at Tiffany's.

Don't fuck around with Reality, it ain't worth it!

Peter K's picture

No wiser words have ever been uttered ;)

Western's picture

It's too bad this isn't clearly bullish (currency printing) or bearish (currency collapse).

Harlequin001's picture

Yep, a flashing neon sign should just about sort it...

pmcgoohan's picture

I dont know. Its seeming a lot simpler to me than it was.

The ECB/FEB wont print until there is a massive deflationary crash.

Then they will print like crazy and there will be a hyperinflationary boom.

Sell until QE announced (earliest next year), then buy.

XRAYD's picture

There are actually three problems here ....


1) They have no money


2) they lie, and ...


3) ... sorry, I can't.






Skid Marks's picture

A psychiatrist should have a wonderful time with this mess.

chump666's picture

yeah they all would be in a psych ward on meds.


The Big Ching-aso's picture



I would certainly expect such a psych to prescribe staring at those casabas of yours as a therapeutic calming agent.

DormRoom's picture

It was a huge bluff, and they got called on it.  Now Merkel must choose: coordination or collapse.


Coordination implies decades of income inequalities among groups, and sovereigns.  BRICS will  lose big, if the West implementes laissez faire monetization.  Which is why the China-Russia axis is taking a firmer posture.  They know that  the West move on Syria is a play for the Strait of Hormuz, which if the West controlled, would be devasting for them. It seems the West  may want growth @ the BRICS expense.


Within nations, greater inequalities between the 99, and 1% will emerge.  And the West will tip towards a police state; pan-national gulag to control the mob, and channel their populace anger, towards war rage.


So the struggle between the 99 & 1% is mirrored in the new foreground struggle between the BRICs & Western Hegemony. 

Collapse--No one has a crystal ball for that, and that gives me a hard on.

In the meantime, the situaiton has turned into a human centipide.

XitSam's picture

"They know that  the West move on Syria is a play for the Strait of Hormuz, ..."

Can you explain this for me?

DormRoom's picture

Israel will bomb Iran for the West, but before they do so, they need the West to sterilize Hezbollah & Hamas, because as soon as they bomb Iran, these two groups will launch thousands of rockets into Israel, and raid settlements.  So Isreal needs to cover its flank.

So the West will occupy Syria, and undermine Hezbollah & Hamas power structures, finances, and Iranian supply lines.  They will also have control of Syrian air space, and air craft carriers positioned ostensibly for the Syrian operation, but in reality prepare for the Isreal bombing raid, and Iranian retaliation.


The US & West will be pulled into the Israel-Iranian conflict by design.  The outlines of how aren't clear.

Once the West is drawn in to the Iranina conflict, Russia will immediately send troops to occupy Azerbaijan, and control the Baku oil fields.


China will posture her navy around Taiwan, and protect African supply lines.    And you have the set up for a new Ag.e




seek's picture

The US & West will be pulled into the Israel-Iranian conflict by design.  The outlines of how aren't clear.

I think every war since Korea this has ultimately been done via false flag attacks or bogus intelligence, or both. So that part sadly is clear.

Awesome analysis, BTW.

Ahmeexnal's picture


Israel knows you can't trust the west.

That's why Israel will not participate in any "kinetic military action".


Element's picture

You're forgetting Russian warships in the Eastern Med near the Syrian coast. The US got wind they were coming so repositioned a carrier to cover Israel and Turkey and to observe ... yeah, ... the delivery of advanced Russian carrier-killer anti-ship missiles to Syria and also S300 SAMs long range air defence. ... good luck imposing a no-fly zone now, those will have Russian operators.

All while the Russians just went to a nuclear combat alert, close to a US Carrier ... this will be the #1 consideration for now.

Everyone is stepping on the other's toes and no one is saying "sorry", and everyone has their guard up just in case ... of ... well, ... let's say Hezbollah suddenly fired 200 rockets into Haifa and launched antiship missiles at an Israeli frigate, as an unidentified targeting UCAV shadowed a US Carrier.

There's plently of room for misunderstandings, and for each navy to demand and even take more elbow-room.

And where there are capital ships there are almost always SSNs and SSGNs nearby to cover them.




disabledvet's picture

i agree with this. and the similarity over here will be with Bank of America et al. The institutions will have to be wound down in an orderly fashion with all that that means. The private sector has gone all in on government inability to do such things...and they are about to lose.

mberry8870's picture

This is truly pathetic. Get it over with.

UP Forester's picture

OT, but you know what's truly pathetic?  The soon-to-be-unemployed folks from Steven J. Baum Law Firm.

Yes, the same fine folks that made fun of the people they made homeless on Halloween.


Miss Expectations's picture

They are closing due to "a series of missteps."  WOW, that's some tame description of fraud.

Ethics Gradient's picture

I love the smell of socialism burning in the morning.

lolmao500's picture

The EFSF is evil and would crush Germany if it were ever set up, which the scum in power in Germany wants. Good thing it's cut.

And it just got a whole lot more dangerous in the middle-east.... especially with those RUSSIANS ADVISERS there...

Report: Russia Sent Syria Super-Advanced S-300 Missiles

A report Thursday said that Russia has supplied Syria with advanced S-300 missiles, and has sent advisers to help Syria run the system.

mt paul's picture

sent them some hot radar systems

tech assistance also...


lolmao500's picture

Not only that but high tech anti-ship missiles too.

Soviet Era Ship Killers Slipped Into Syria

The Yakhont uses a liquid-fuel ramjet and travels 300 kilometers at speeds of over 2,000 kilometers an hour (using a high altitude cruise and a low-altitude approach; if it travels entirely at low altitude the range is cut to 120km). When the missile arrives in the area where the target is supposed to be, it turns on its radar and goes for the kill.

The Yakhont is a 8.9 meter (27.6 foot) long, three ton missile with a 300 kg (660 pound) warhead.

The SS-N-26 has a cruise speed of Mach 2.6 at high altitude or Mach 2.0 at low altitude. It has a minimum range of 50 km, and a maximum range of 300 km when cruising at high altitude and 120 km when at low altitude. It flies at low level during the terminal phase, between 5 and 15 m in altitude, and makes evasive maneuvers near to the target to defeat any defenses. It carries a 250 kg high explosive semi-armor piercing warhead.

topcallingtroll's picture

No problem.

We can fry its electronics.
We can laser it.
We can jam its radar
We can shoot it down with the new guns that shoot caseless ammo at 6 million rounds per second. Forgot the name of this kind of gun.

All of these technologies are fully operationalized and deployed.

I still dont understand why people think the united states is vulnerable militarily. Wishful thinking?

We will also have an operational hypersonic missile before anyone else. Just recently successfully tested.

q99x2's picture

What if Russia's Mars Moon Probe is not what it was thought to be but instead a doomsday machine. It is now coincidentily keeping itself in perfect orbit all by itself.'s picture

The US couldn't stop a dozen guys with utility knives.

blunderdog's picture

I still dont understand why people think the united states is vulnerable militarily. Wishful thinking?

Not wishful thinking.  Fucking recent experience.  If you look at our enormous successes over the past decade, it seems like maybe we're not really that SUPER at what we've been trying to do.  (Vulnerable in what sense?  No one's going to storm our beaches.)

Plus we sure did kick the shit outta Grenada...