Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt
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.
(15 votes)
»
- Login or register to post comments
- 23354 reads
- Printer-friendly version
- Send to friend
Similar Articles You Might Enjoy:
- How and Why Germany Can Leave the Euro If It Has To
- Former Bundesbank President Weber Warns Germany Will Be On The European Bail Out Hook For Up To 314% Of Its GDP
- The Euro’s Death Knell Could Come As Early As September 2011
- The Countdown To The Break Up Of The Euro Has Officially Begun
- The Big Rift Between Germany and France
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!!
Bullshish for stocks!
And barrels. Especially the ATI, Mossberg, AR and Ruger varieties.
Dont forget about nice German ones like H&K.
Or cheap, reliable ones like the AK, easy enough for even teenaged morons to operate. Did I really say that?
Did someone mention AKs?
http://www.jgsales.com/index.php/rifles/ak-pattern-rifles/cPath/209_214
Good folks and good service at J&G. I exchanged FRNs for two of their AKs and am happy with them.
Just heard Rush comment on this story on the radio, "According to Tyler Durden at Zerohedge.com .....". Love it.
Hasten the Collapse, OBAMA 2012
Rush is now quoting Tyler on the air? Rut-roh. ZH has gone mainstream. We're screwed.
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.
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.
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?}
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.
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......
@FedBuster
Read more: http://www.businessinsider.com/glenn-beck-location-israel-rally-security-2011-7#ixzz1UCAq3qcmIt'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
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.
Swiss engineering & manufacturing, bitte:
http://www.sigsauer.com/CatalogProductDetails/sig556-swat-patrol-rifle.aspx
can't beat a slingshot and ball bearings! kill quietly, kill often!
Yep, the MR556 is a masterpiece.
The European Financial Stability Fund is a farce of US Treasury Ponzi-scheme proportions.
Who's the greater fool?
At least I'm managing to fish a few choice pieces out of the river of sewage as it flows along.
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."
KEYWORDS: BLUFF - IF - COULD
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.
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.
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.
Geopolitically, Germans always were and are stupid, fking idiots
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.
yes, thank God the Americans were not ignorant or arrogant on the Afghan front
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.
Actually, he thinks he's a Duke Snyder.
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.
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.
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.
The hand that feeds is biting itself! LMAO!
We can clearly see 100% that this GAME IS OVER!!! THERE IS NO MORE HIDING!!
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.
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.
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......
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
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?
The Deutchmark, returning soon to a brauhaus near you...
at least the shit shack is carpeted wall to wall with paper
one little match however
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?
We already are...they're called "dollars".
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.
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!!!!!!!!!!!!!
So the ECB is the "fireman" in town. Does he have enough hoses and hydrants?
ECB's got hose in hand and a half-empty bladder. No problem!
So that's what a piss-ant is...
Great visual!
Piss - bar pervert? There are things I could tell you about Germany that you wouldn´t believe
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.
Losing world wars (twice) has consequences.
Theres also a typo:
It doesn't matter that a spelling mistake occurred. What matters is the oligarchs will not allow the EU to crumble. Its all part of the plan to form a global currency. The ECB will just push some of the stress off onto the Fed. By understanding monetary policy you know a one world currency is inevitable. Google and read Reserve Accumulation International Monetary Stability by the IMF.
You over-estimate the power of said oligarchs. A global (fiat) currency is undoubtedly their goal, but it is a goal that will never be achieved.
In fact, the exact opposite of what they are trying to do is happening, and that is a return to PM's.
The EU is a good example of why that globalism thingy won't work. Too many deadbeats. Too many conflicts of interest. The only way for one world government to function is by vicious dictatorship. The entire democracy thing has to go away. The EU is doomed, another Titanic, and that reality is becoming clear. The only question is how to unwind it.
I hope you are right, but that is the war shaping up, isn't it, totalitarianism vs. local determinationism. Here is his document. If people don't want to do the work to understand what is at stake, it will be decided for them. Boy this frightens me:
http://www.imf.org/external/np/pp/eng/2011/010711.pdf
It seems so reasonable...
Centralized systems are fragile systems. Unsustainable.
And... documents on the other end of the spectrum
I think some people who think that a global currency don't see just how stupid most people are. Its understandable in some respects to think that there may be a change in tide because the internet allows for like minded people to congregate. But step away from sites like ZH and go to the store and ask someone what is money? Or who the ECB or Fed and what do they do? They'll gloss over the question and tell you about last night episode of Jersey Shore.
I think some people who think that a global currency don't see just how stupid most people are. Its understandable in some respects to think that there may be a change in tide because the internet allows for like minded people to congregate. But step away from sites like ZH and go to the store and ask someone what is money? Or who the ECB or Fed and what do they do? They'll gloss over the question and tell you about last night episode of Jersey Shore.
I think some people who think that a global currency don't see just how stupid most people are. Its understandable in some respects to think that there may be a change in tide because the internet allows for like minded people to congregate. But step away from sites like ZH and go to the store and ask someone what is money? Or who the ECB or Fed and what do they do? They'll gloss over the question and tell you about last night episode of Jersey Shore.
a.k.a. Slavery vs. Freedom. Chaos theory predicts the winner: Freedom. Us. But there will be blood...
Seems like the economic hardship imposed on the Germans after one of those wars had a lot to do with the second war being fought. History is never an exact repeat but it does rhyme, this certainly would rhyme with Versailles.
1913 the Fed is created
1914 WW1 begins over some stupid pretext
1929 the Fed crashes the global economy
1933 Hitler (a man with no background) takes power in Germany
1936 WW2 begins over 2 things: money and resources (forget the over the top flashy Nazi drama)
What will the future hold you ask?
More of the same, but always keep in mind and remember how and where it all started even before 1913
Mayer Amsel Rothschild is just one piece of the puzzle.
2008 a man with no background takes power in the USA.
I like this game! Can I play too?
2001 a man with no brain takes power in the USA.
2011 the earth is awash with cheap credit and record low rates
I want to play too!
The man who takes power in 2008 never went to college, not that I can tell
The idiot in charge in 2001 did, transcripts and all..
Does it matter no, but you bots are just soo dumb it is fun to poke you..
This bot is soo dumb that I actually like your comment. (maybe because it proves a theory I have about American higher education). Or maybe it was because you called GWB an idiot :)
Jekyll Island brought it to 'merika in full force before that Rothschild et al. were still able to be thwarted, after Jekyll Island, well you see where we are today.
2008-owebama (a man with no background) takes power in 'merika
2011-2012?- WW3 begins over two things money (the dollar's reserve currency status), and resources(oil)
Sounds like more of the same to me as well. But it never could have happened here without the Jekyll Island conference.
The EU is dying... Germany is best served letting it die.
Germany gets what it deserves and if the German citizens dont realize what just happened then they deserve it too. Sorry to say but that is truth!!!
Why be sorry? If the German people allow that then they are no better than the American people who have allowed this travesty here to fester as long as it has. Ultimately, the people get exactly what they deserve.
Unless crimes were committed.
What crimes HAVENT been committed?? Hell Wall St just got busted running a hooker and cocaine ring....WTF??
THANK YOU, DAMMIT!
Whuh? Of course crimes were F'ng committed. They've been committed since this shit began. As long as the American people continue to piss and moan and look the other way and give lip service about it and nothing else and then continue to re-elect the same old scum bags year after year then crimes will continue to be committed.
crimes have been committed except the criminals run the government now. That is getting clearer every day. The responsibility is now clearly in our hands
+ 5.56x45
+.308
+.357
...but they change the laws so that they are no longer crimes.
You guys dont get it, the Germans will now get what they have always wanted the new 4th Reich. They will rule Europe!
Lets see....go bankrupt and let your own house be foreclosed on to finance your bum neighbors....
or tell the neighbors to go deal with their own problems and leave you alone.
The answer seems simple! Yet this is a different world where the most insane solution wins every time.
Merkel is totally screwed. What she should do is tell the EU to stick it and return to the deutsche mark, but if that happens, the DM will soar for the same reason the CHF is appreciating, and Germany's exports become far more expensive.
If she doesn't capitulate with the EU bailout, she risks blowing up Deutsche Bank which is leveraged to the moon, owns a shitload of toxic RE, and is almost as big (assets) as JPM in a country with an economy less than 1/4 the size of the US economy.
Why do you think .gov, movies and the international press has been pushing the guilt meme for so long?
Who is John Galt?
sounds like "problem solved" to me. [/sarcasm]
Notice how "problem solved, the world is saved" seems to be happening on a daily basis now? Yeah thats the shit... game over!!
short-attention-span-positive-feedback-loop, engaged.
This has the scent of Versailles Redoux. Shouldnt be too concenred I guess, the first time germany was forced to shoulder the entire burden of Europe's foolishness it worked out so well.
/sarcasim
ciao
The only way this makes sense is if Germany stands to gain everyone's GOLD if there is a default. Infrastructure and land won't be enough to justify this action
Germany is the 3rd larges gold 'holder' too bad 99% of this gold is in New York and London
Whose dumbass decision was it to allow foreigners to hold your sovereign gold?