Europe's Dilemma: "Probability Vs Impact"

Tyler Durden's picture


When it comes to the future of Europe, one simply has to look at the foundations or the so called "euro-architecture" which as the past two years have shown us, are in dire need of strengthening lest everything topples over. Mere talk will no longer cut it. Simplifying things further, one can distribute the potential outcomes facing Europe along two axes: Impact, or an event's likelihood of actually doing something to change the current "sinking ship" status quo, and Probability, i.e., how much resistance, mostly political, will a given plan face, primarily from Germany which over the past year has fallen into its rightful place - that of Europe's fiscal, and monetary - because even the ECB will not move without German approval - paymaster. Obviously the two are inversely correlated. Whether or not the European crises ends, will depend on precisely which of the 9 listed outcomes below Europe decides upon (or all). However, as is well-noted on the chart, There are "No obvious game changers." Which is why anyone hoping for a Deus Ex, before much more pain is first experienced, as Deutsche Bank explained earlier, will be bitterly disappointed.

The scenarios are as follows, via DB:


1. Roadmap to fiscal union, long-term vision for euro to present/explain to markets the path to crisis resolution


  • Strenghten banks to protect financial system, maintain credit to the real economy;

2. ECB liquidity to ease bank funding

3. Direct recapitalization of banks (ESM/EFSF)

A. EU-wide deposit guarantee/banking union - end game, not short-term measures


  • Support countries with difficulties accessing markets

4. ECB bond buying, liquidity for banks to buy sovereign bonds

5. Extension of existing bailout programs

B. Eurobonds/redemption bunds - end game, not short-term measures


  • Increase firepower to reassure markets that we can credibly deal with deeper crisis (e.g. Spain, Italy)

6. Larger ESM

7. Banking license to ESM at ECB (increases lending capacity)


  • Support growth in short-term to mitigate negative impact from austerity

8. EU structural funds/EIB Capital increase/Project bonds

9. Policy rate cut by the ECB


Finally, and again from DB:

We think uncertainty will prevail over the months ahead. The most likely
path, in our view, is that European leaders will continue with the
incremental approach that has thus far failed to contain the crisis.
While enough may be done to convince the ECB to step up its
intervention, volatility and concern over Europe are likely to remain
for the foreseeable future.

We agree.

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Dick Darlington's picture

Is begging Douche Bank's biggest business now? Makes me wonder in what shape the bank really is... I bet there's a monster hidden in it's balance sheet.

OttoMBMP's picture

The wrong underlying assumption of all these fancy thought games is that spending (German) or printinting money could somehow save this mixture of socialist and crony capitalist elements, this EU mess.
I am somewhat disappointed that these non-thoughts gain more and more space even here on ZH.
All these super measures would gain months or years for TPTB, nothing more.

macholatte's picture

All these super measures would gain months or years for TPTB, nothing more.


Isn't that all they really want =>  they remain in power without personal liability for anything (job #1) and the sheeple remain debt slaves (job #2).


The can shall be kicked!

"So let it be written. So let it be done."

lolmao500's picture

What about a military coup in Greece?

"the greek army is a silent force, but it will roar mightily when neccesary" was the defence secretaries answer to questions about the coming elections.


tiger's picture

Good comment. As usual banking matrix do not take into account military and peoples' reaction. Yet, a good matrix but far from being complete, another banking eye: this is exactly why they'll fail.

Snakeeyes's picture


One again, analysts are enamored with incremental approaches to patching a leak. The problem is structural and not easily patch.

Look at what happened to the M1 Money Multiplier when The Fed went on its Excess Reserves crusade. IT TANKED!

Now the U.S. banks have tons of reserves, but are lending sparingly. Hence, no multiplier effect. And velocities blow too.

So, additional reserves won't help Europe, It has to be austerity and paying down their accumulated debt. There will be blood, but DB seems to be asking for a Hail Mary shock that won't work.

DCFusor's picture

What makes you think they actually have tons of reserves, with mark to fantasy still in action?  Maybe those paper reserves are just not even quite cancelling out some other monsters on the books...I think that's quite likely, or they'd be lending more.

earleflorida's picture

it will probably be many years before we find out, seeing that habeas corpus has been put on homeland securiy watch, and the foia put on the terrorist list 

jimmyjames's picture

What makes you think they actually have tons of reserves, with mark to fantasy still in action?  Maybe those paper reserves are just not even quite cancelling out some other monsters on the books...

I think that's quite likely, or they'd be lending more.


They have lots of reserves that can be loaned out-but that it not the problem-

You are quite right about the unseen liabilities that would cause the reserves to vaporize in a flash-if they were ever marked to market and what's worse is that the deposits have been levered and loaned out prior at about 10-1-if we all went to cash in a rush-we're hooped-

imo-The reason banks aren't lending is because those who would borrow can't (FICO) and those who could-don't want to in this bear climate and businesses that did borrow to the max-in case credit froze again are holding it on balance sheets and not deploying it-

Segestan's picture

Since most of the west has no real economies.... there is only one move left ...... Totalitarian socialism. The pendulum swings. Self diagnostics is a bitch.

Oh well... I guess 40+ years of helping the communist gig really out of greed was a Baaaaaaad idea.

Umh's picture

I hope you are wrong or that people get smarter. Ouch!

Newsboy's picture

(10) Global Financial system collapse

High Probability, Uncertain Time Frame

The "final solution" for 80 years or so...

Abraxas's picture

I believe that there is a common misconception that this is somehow OUR economy, and that all of the economic statistics and studies are somehow for OUR benefit. If the stock market plunges most of us loose money, but that does not make it ours. It’s THEIR economy and sooner we realize this, the sooner we can disassociate ourselves from them. I’d like to see them play their games and lead their wars without our contribution.

Steve in Greensboro's picture

In reality, no action exists that belongs above the horizontal line (high positive impact) other than massive tax cuts, more massive cuts in government services and massive downsizing of governments.

And of course those actions belong on the far left hand side of the matrix, because our Ruling Classes would rather die than give up power.

All the actions listed in the note above belong in the lower right quadrant (low positive impact or high negative impact and very high probability).

Road to Serfdom. This is what happens when you place your trust in people like Chicago Jesus.

bigwavedave's picture

Saving Deutsche Bank seems like Deutsche Banks best idea. LOL

Alpacanio's picture

And.. we are live...  Hello ZH'ers Comming from you live from a bunker in a undisclosed location.


Deutsche Bank is just that, Deutsche Bank! They are right though. We do need a HUGE reset! Will Greece cause it??? Only the Greeks know.


Bless your souls ZH.

Jack Sheet's picture

You forgot : 100 trillion SDRs of new credit

farmboy's picture

Strenghten banks to protect financial system, maintain credit to the real economy;

That must be a mistake, DB means forget credit to the real economy and maintain carrytrading for banks.

vh070's picture

Starvation on the streets won't do it, blood might.

shovelhead's picture

Greece is in the dentist's chair and reaches over and grabs the ECB dentists balls and asks," We aren't going to hurt each other, are we?"

This extraction may not turn out well.

Nussi34's picture

Fuck the PIIGSS!

snowlywhite's picture

I wonder why those scenarios strike me a self serving...

The Onion Of Twickenham's picture

Have Syriza just been guaranteed victory in tomorrow's election?


Greece have - against all the odds - just progressed through to the quarter-finals of the Euro 2012 soccer championship. They beat Russia on the night. The match was a classic David v. Goliath fixture. The Greeks were supposed to roll over and be crushed under the boot of the superior Russian team but the defied all the pundits expectations.


It's a classic case of "never say die" and not listening to the "experts" who tell you that you can't win. Sounds like a Syriza win to me!

q99x2's picture

With those kind of odds mayswell throw Itally and France into the mix and see what happens.

silverdragon's picture

It is all smoke and mirrors.

TPTB are just scaring the sh*t out of the mindless masses so that their solution will be accepted.

A united Europe, monetarily, militarily, and politically.

One cuntry.

Grand Supercycle's picture

Rally warning continues...

SPX bullish daily chart strengthened further on Friday & more rally expected.

DOW initial target approx 13,170 & more upside after that.