Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt

Tyler Durden's picture

Two weeks after Zero Hedge readers were informed about it, slowly the sell side is coming to the realization that not only will the EFSF have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money. And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion which according to Daiwa's Head of Economic Research, Grant Lewis, is an act which will be necessary to convince financial markets of euro area resolve to save Italy and Spain. Says Lewis: "France, Germany contribution to EFSF’s capital would increase to 80% if Spain, Italy had to drop out of guarantee structure.  France, German contingent liabilities would be > 50% of GDP if EFSF expanded; added to France, Germany current debt may trigger downgrades to both countries." Yes... and no. As we explained when we referred to a far more accurate and complete report by Bernstein, merely a €1.5 trillion expansion in the EFSF, would mean that Germany is on the hook to the tune of €790 billion or 32% of German GDP. If France is downgraded, Germany essentially becomes the sole backstopper of the entire Eurozone, to the tune of €1.4 trillion or 56% of its GDP. Now let's assume Daiwa is correct, and the full amount under the EFSF has to increase to €3.5 trillion. That means that Germany "contin[g]ent liabilities", in the worst case scenario where France again gets downgraded, and it likely will eventually, would surge to about €3.3 trillion, or an insane 133% of German GDP!

Now let's put today's events in perspective.

Basically what just happened an hour ago, is that the ECB gave a green light to use the SMP program to buy Italian and Spanish bonds: the two countries which recently put themselves into a self-imposed capital markets exile as we reported earlier. The problem is that the SMP's unsterilized purchasing capacity is de-minimis and it is merely a stopgap until the sterilized EFSF is enacted in its final form. The question is precisely what this final form will be: will it be €1.5 or €3.5 trillion. Nobody knows yet which is why Rehn refused to answer the question twice already today.

Either way, let's assume EFSF gets clearance. At that point the SMP gets deactivated, and EFSF takes over.

And here is where Germans get angry, because explicitly they end up backstopping everyone in europe! And the cost to them becomes 133% of their entire economy in a worst case scenario, which of course in this centrally planned world, is now guaranteed.

So the ball is now basically in Germany's court: will the German export sector be ok with leaving the country on the hook to a complete implosion once the final European house of cards implodes, or, will German practically once again take over, and tell the ECB, the bureaucrats and every other insolvent European country to go shove it, in the process bringing back the D-Mark and returning to a life of quiet contentment without a customs, cultural or monetary union.

Oddly enough, our money is on the latter.

PS. In the meantime, short Bunds (or to borrow a Gartmanism, go long gold in Bund terms) ahead of the market's realization that peak risk transfer from the periphery to the core is now in process.

PPS. A fully funded EFSF will need to issue €3.5 trillion, or $5 trillion in debt. Repeat: $5 TRILLION.

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jus_lite_reading's picture

Wow! Talk about being all in on a bad poker game! The global ponzi will sure as hell blow up soon after they realize they can't handle it all at once!!! HYPERINFLATION HERE WE COME!!

Tortfeasor's picture

Bullshish for stocks!

And barrels.  Especially the ATI, Mossberg, AR and Ruger varieties.

SheepDog-One's picture

Dont forget about nice German ones like H&K.

DoChenRollingBearing's picture

Or cheap, reliable ones like the AK, easy enough for even teenaged morons to operate.  Did I really say that?

Shell Game's picture

Did someone mention AKs?


Good folks and good service at J&G.  I exchanged FRNs for two of their AKs and am happy with them.

FEDbuster's picture

Just heard Rush comment on this story on the radio, "According to Tyler Durden at Zerohedge.com .....".  Love it.

Hasten the Collapse, OBAMA 2012

SokPOTUS's picture

Rush is now quoting Tyler on the air?  Rut-roh.  ZH has gone mainstream.  We're screwed.

FEDbuster's picture

Yes he is.  It was great, I almost spit the Coke I was drinking out while I was driving.  "According to Tyler Durden at Zerohedge.com....", it was a beautiful thing.  Glenn Beck did it a couple of times on his TV show, too.

Idiot Savant's picture

Ummm... being mentioned by Rush & Beck is quite the opposite of a good thing. Jesus, Tyler will soon be running NASCAR adds on this site.

New_Meat's picture

Idiot-not the first time for either mention.

And your suggestion about NASCAR is really good.  More clicks than Cramer, I'm sure-->more revenue.

- Ned

{But WAIT!  The ads are sensitive to your viewing history and cookies!  Don't tell us that you surf NASCAR?}

CompassionateFascist's picture

Limbaugh referenced ZH (this article) at 10:15 AM (PST), 8/5; his last obeisance to TD was a couple months back, so we were due. In fact I suggested he do so in a thread here last night; he saw the article/thread, cause>effect. It's a mistake to lump Limbaugh with Beck and other neo-cons. He's actually further toward the right, and on political economy, pretty much in synch with this site. He detests banksters and crony capitalists as thoroughly as he detests the Left.  

smlbizman's picture

as addressed yesterday, these guys {the tylers} should be the most well paid, most reverend financial people on this planet, they have literally saved so many of our furtures.  i really hope that they can understand  the impact they have had on us, the appreciation the  daily loyal followers have for them.  so much of  underground brilliance ends when the light of day is finally placed upon it. i truly do not know what i would do without the "hedge".  i am constantly a person who always think of others first in all i do, but this time for my own selfishness, i  pray that they remain underground.  i do not want fair weather sheep fuckin up my "hedge".....i love ya man!...


and for all you grammer assholes who feel the need to point out typos and other imperfections , i would like to say with all due respect to  ...please go fuck yourselves...and i said with all due respect so it makes it ok......   


Cathartes Aura's picture


Glenn Beck has changed the location of his big rally in Israel this August due to security concerns

Read more: http://www.businessinsider.com/glenn-beck-location-israel-rally-security-2011-7#ixzz1UCAq3qcm
FEDbuster's picture

It's interesting that Glenn draws so much anger here.  Sometimes the clown and preacher act gets old, but Glenn is ripping on the FED, banksters and politicians equally.  He is also telling people to "prepare for the worst, and hope for the best".  He has talked about owning gold for years, buying a years worth of food for your family and is a proud gun owner.  So to all the Beck haters out there, fuck off.

Hasten the Collapse, OBAMA 2012

Cathartes Aura's picture

no information peddled by Beck is new or exclusive, it can all be found in many many other places, HERE for example - there's no need to have your news chewed up and spit into your mouth, pre-digested by someone with an agenda.

know your source.

sabra1's picture

can't beat a slingshot and ball bearings! kill quietly, kill often!

Variance Doc's picture

Yep, the MR556 is a masterpiece.

Greater Fool's picture

At least I'm managing to fish a few choice pieces out of the river of sewage as it flows along.

Ghordius's picture

Read it: "In what amounts to a massive bluff, the entire fiscal condition of the EU is on the table. If the bluff is called, Germany could be left holding the bail-out bag."




It will not be called. If it will be called, it' wont be honoured. Everybody knows the German would go berserk, if we know something in Europe, is that you don't want the Germans to go berserk.

Pay Day Today's picture

Any guesses what the Americans are pressuring their allies the Germans to do about the EU debt crisis? Do you have a sense of US-German political relations at the moment?

Or have the Germans finally decided that their US allies have led them into one blunder after another.

Ghordius's picture

I don't see (from my limited vision) a "unified US" pressure on the German and French Govs. What I see is:

- a strong TBTF pressure on the EU to 1) accept a different set-up and 2) to install the TBTF preferred set-up, i.e. an EuroBond

- a medium pressure on Italy on having no opinion on the future of Libya and, more important, to OPEN their capital markets more to other banks. TBTF wants the Italian capital market to resemble more their usual hunting grounds.

- the usual decade-long pressure on Europe to decrease military spending (Ike warned against this)

- the usual misunderstanding in US diplomacy about how much the French and the Germans care for joint policies, how much the Italians and now the Spaniards are into it and the role the Benelux. Sometimes I think this is because US diplomats focus on one country and one language and become "color-blind".

- Meanwhile Russia has become the most important trading partner of Germany, followed by France. Last time it was the 1930's. Soon being friends with Russia will become more natural...

- IMO the Germans's position is still clear and the French, Italians and Spaniards are going to try many, many "unorthodox" approaches so that the German's keep their cool.

caconhma's picture

Geopolitically, Germans always were and are stupid, fking idiots

  • There were no need for them to get involved in the WWI
  • There was no need for them to declare a war on the USA in 1941
  • Their leaders never purged their country from a 5th column
  • Their stupid arrogance never knew limits

Germans might learn something from Afghan people: regardless who you are but, if you invade their country,  they will send you back home in a body-bag.


DaveyJones's picture

yes, thank God the Americans were not ignorant or arrogant on the Afghan front

caconhma's picture

Yes indeed but Obama thought that he is a Bonaparte. May be not.

May be Obama thought he is a Duke Wilmington or some other Great Kenya chief.

It is 3-feet tall Sarkozy who thinks he is a Bonaparte.



RichardENixon's picture

Actually, he thinks he's a Duke Snyder.

midtowng's picture

It's all a confidence game. This latest bailout will never happen, and wasn't supposed to happen.

The announcement was only supposed to calm markets for the weekend. It's harder to control the markets over a weekend.

   When the markets start realizing the bailout won't happen some time next week, we'll see another plunge. But in the meantime they put off the day of reckoning for a little while longer.

macholatte's picture

The poker game is a good analogy. Didn't the USA fund huge money to bail out the EU banks? My guess is that the player sitting in position #3, that guy with the really large sunglasses and sombrero, is Uncle Sam.


anonnn's picture

Dow/Naz/S&P 2-min charst presenting ragged-jerky-ticky dirty-pen motion.

Where's the doctor? Call in the auditors. The InvisibleHand[s] fighting itself.

jus_lite_reading's picture

The hand that feeds is biting itself! LMAO! 

We can clearly see 100% that this GAME IS OVER!!! THERE IS NO MORE HIDING!! 

MsCreant's picture

If the majority does not get it, does not understand it, is bored sitting and trying to understand it, is not motivated to understand it, they will get away with kicking the can yet again. I can't tell you how hopping pissed I am, but sadly, I think this is the truth. We will need to come against an obdurate, physical, kickable, limit, before this shit shack comes down.

newworldorder's picture

I am with you, +1000% on this. The only hope left is for the German electorate to say NO to this insane backstopping and guarantees. If they go along then nothing will bring this ponzi down.

There is no hope for the US electorate. Most of what is going on is really beyond their ability to comprehend and resits what is going on.

itchy166's picture

The great recession will end the same way as the great depression ended.  The can will get kicked down the road until another (world) war starts.  

Unemployment solved, ponzi obliterated in the process with one big world-wide default.  New World Ponzi ground floor level when the war is over......

caconhma's picture

This time, the WWIII will not do a shit for the USA.

It is a very different world than one in 1940s. Obama is definitely not FDR.

The most important item is that today USA is not the USA of 1940s

·        There are not too many idiots to fight and die for the Kenyan preseidente and his WallStreet oligarchs handlers

·        The US industrial base is not in a position to produce high quality weaponry in high quantities. The Pentagon budget is as wasteful as Medicare

·        Just look at Obama’s successes in Afghanistan, Iraq, Yemen, Libya, Somalia, etc.,

·        As for our European friends, Afghanistan and Libya are more than can handle


itchy166's picture

You must be an American.

Nowhere did I say that WW3 would benifit America (or Americans).  Nor did I say or imply that they would win.

The US will start, or join, or will purposely be drawn into ww3.  They will reinstitute the draft to fight unemployment.  They will default on their debt.

After the war, a new ponzi will replace the current one.

Will the US still be a superpower on the other side? Maybe, but who cares?

Jonas Parker's picture

The Deutchmark, returning soon to a brauhaus near you...

DaveyJones's picture

at least the shit shack is carpeted wall to wall with paper

one little match however

Strider52's picture

Why don't we just print up a gazillion Quatloos, drop them all over the planet, and tell everyone that they're worth 1 iSomething or another?

CompassionateFascist's picture

We already are...they're called "dollars".

Manthong's picture

If they thought they took it in the shorts after the Treaty of Versailles, wait till they figure out what the deal is this time around.

24KGOLD FOIL HAT's picture

Like Dr. Strangelove's black gloved hand...Thur eve in Wisconsin we had a reverse racism mob attack ala Clockwork Orange...Time to have a Kubrick film festival this weekend to prepare for the Goldman HAL 9000 moment on monday...Major Kong has almost got the bomb door wiring fixed!!!!!!!!!!!!!

Cleanclog's picture

So the ECB is the "fireman" in town. Does he have enough hoses and hydrants?

Bastiat's picture

ECB's got hose in hand and a half-empty bladder.  No problem!

MsCreant's picture

So that's what a piss-ant is...

Tom_333's picture

Piss - bar pervert? There are things I could tell you about Germany that you wouldn´t believe

john_connor's picture

German Bunds blow up in 3....2....1......

Then 1/6th US funded IMF comes in to save the day however US debt will get detonated to the chagrin of the PTB.

ZeroPower's picture

Theres also a typo:

in the process bringing back the D-Mark and returning to a life of quiet contentment without a customs, cultural or monetary union.