As Final EFSF Details Emerge, German FinMin Says Bail Out Fund Won't Halt Crisis

Tyler Durden's picture

Some (non-news!) final details are coming out from Europe this evening on the EFSF structure, size, and funding. We provided a framework for understanding the entity this morning, along with some views on just how successful it would (or would not) be. EFSF CEO Regling stated that various approaches will be used simultaneously, providing the entity with more funding flexibility, which is odd since in the next breath he notes the decision to tap the short-dated debt markets in December (seems with all that flexibility you might want to go a little further out). The current lending capacity is EUR 440bn, and they expect a 20-30% partial protection approach meaning they could theoretically leverage around EUR 250bn by around 3-4x. What is most ironic is German FinMin Schaeuble's comments, via The Telegraph, that "although Europe desperately needed a fund "capable of action", plans for the EFSF were too "intricate and complex" for investors to understand", further noting that the fund won't stem the debt crisis.

But maybe the most damning statement comes from the architects of the fund themselves, Regling and Juncker, who said that it is "not possible to give one number on EFSF leveraging" and that the "EFSF firepower will be less than EUR1 trillion ". Case closed.

EFSF 10Y yields are around 4% currently - almost 150bps wide of the mid-September levels. Perhaps this helps explain the need for short-term funding.


Full EFSF Statement (in which there is nothing new and realistically no specifics):


Brussels/Luxembourg – Euro area Finance Ministers agreed on 29 November on the terms and conditions to extend EFSF’s capacity by introducing sovereign bond partial risk participation and a Co-Investment approach. Ministers also adopted amended EFSF guidelines concerning intervention in the primary and secondary debt markets and precautionary credit lines in order to use leverage. Klaus Regling CEO of EFSF commented “Both options are designed to enlarge the capacity of the EFSF so that the new instruments available to the EFSF can be used efficiently”.


Under the partial risk protection, EFSF would provide a partial protection certificate to a newly issued bond of a Member State. The certificate could be detached after initial issue and could be traded separately. It would give the holder an amount of fixed credit protection of 20-30% of the principal amount of the sovereign bond. The partial risk protection is to be used primarily under precautionary programmes and is aimed at increasing demand for new issues of Member States and lowering funding costs.


Under option two, the creation of one or more Co-Investment Funds (CIF) would allow the combination of public and private funding. A CIF would purchase bonds in the primary and/or secondary markets. Where the CIF would provide funding directly to Member States through the purchase of primary bonds, this funding could, inter alia, be used by Member States for bank recapitalisation. The CIF would comprise a first loss tranche which would be financed by EFSF.


Chris Frankel CFO and Deputy CEO of EFSF commented “Following extensive discussions with investors covering all types and geographical regions, a number of them have given their positive views and signalled their willingness to participate.”


EFSF will now implement these two approaches to be ready early in 2012 to use them effectively in the context of the guidelines for the new instruments on market interventions.


EFSF will be able to use both leverage options simultaneously. The final amount of “firepower” achieved through the use of the options will depend upon the concrete use and mix of the instruments and particularly the exact degree of protection between 20% and 30%. EFSF has currently a lending capacity of €440 billion and firm commitments regarding Ireland and Portugal totalling €43.7 billion.


EFSF is also expected to finance a second aid programme for Greece and fulfil tasks such as financing recapitalisation of financial institutions in non-programme countries. Without knowing the exact amounts needed, EFSF should be able to leverage own resources of up to €250 billion. Deployment of either instrument using leverage will only be made following a request from a Member State. Any support from the EFSF will be linked to strict policy conditionality, monitoring and surveillance procedures.


So, in summary, after extensive discussions with probably every sucker sovereign wealth fund in the world, the highly complex structure credit product and its various entities will only be able to find private funds via short-term debt markets? And that is what will save us all? Forgive our incredulity as we tend to agree with Wolfgang that this won't work.

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kengland's picture

They already said they were planning on levering it up 3 to 4 times? Why is this news being repeated as if it new? Why is the media laping it up as if it's new? I suppose tomorrow we will read that Merk and Sark will be meeting to discuss what to do about Greece?

Mike2756's picture

They are going to give Greece more money. Lesson for the rest to come up with their own extortion plan.

phungus_mungus's picture

Why would anyone in their right mind, firstly... believe any of this and secondly buy into it?

What are these idiots smoking?!?!?!?

Mike2756's picture

Doesn't look like the currency markets are buying it.

phungus_mungus's picture

Exactly... its like these fools are on another planet or soemthing.  

bank guy in Brussels's picture

Actually, there may be, very cleverly, a new Swiss - German currency shortly. Germany may be putting out failing, un-workable, un-sustainable ideas on purpose, because Germany is secretly planning to exit the euro before Greece does, and Germany is stalling participating in a euro plan when Germany knows it won't be there.

Germany getting ready to leave the euro, explains the German 'No' to most solution measures, why Germany is suggesting ridiculous solutions ... why Germany is exacerbating the crisis ... which Germany will shortly solve.

A super-strong Swiss - German currency which would soon be among the world's favourites.

The Swiss franc is already pegged to the euro, and if Germany, and perhaps some other northern countries leave the euro, the Swiss would obviously shift their peg to the new German money.

Switzerland could solve its own drastic problem of the upward pressure on the value of the Swiss franc, by buying a lot of German bonds to help re-capitalise German banks. The Swiss and new German currencies could stabilise together as a linked pair.

It all makes sense. It is cheaper for Germany to re-capitalise its own banks (which would collapse from the debt they hold in euros on the other countries), than it is for Germany to promise to pay for all of Europe to infinity.

And this way the southern countries could keep the euro, the European central bank could inflate for them, they could print like Ben Bernanke, they could have cheaper currency to attract tourists and export, et cetera.

This is a fit-the-dots explanation for why Chancellor Angela Merkel and the German leadership are acting so strangely ... so obstructionist to possible solutions to the euro-zone ordeal ... saying things that rather makes things worse ... pretending to support ridiculous pipe dream plans for 'supervising' Europe ... offering up a laughable EFSF programme.

In the UK Telegraph, Ambrose Evans-Pritchard has been suggesting this for quite a while, Germany leaving the euro as the best solution for everybody, leaving the southern countries with a currency deflation option to rescue themselves.

In a few days Germany will lead a meeting which will establish procedures by which countries could exit using the euro ... theoretically they have Greece in mind, but maybe indeed, Germany is secretly preparing its own exit, as already suggested here on ZeroHedge by Alexander Gloy of Lighthouse Investment Management.

It is of course unusual for Germany to be so bold in this way ... but maybe it is time for Germany to be bold again.

Captain Kink's picture

i like it.  Why not include Norway, and perhaps some other northern players?

I was teaching a bunch of Chinese executive bankers today (don't ask) and had spent a good hour on a segway into the euro crisis, and describing the current state of affairs and possible resolutions.  This is similar to what I surmized.  there really is no saving the rest.  "teenagers with credit have to cut em off and kick 'em out of the nest." - this was the summary of one of the "students". I recognized at that point that it may be Germany who leads the way.. they may be working on the manner in which the generic member might be allowed to exit (or even as far as criteria for excommunication) and while all the world assumes they are enabling the exit of the southern proflilgates, they utilize the mechanism only to recreate a brand new alliance with the northern members who would have followed suit. It was a great exercise and really helped me to crystallize my own feelings on the subject.  

i-dog's picture

Germany joining with the Swiss (the German hill tribes) makes sense. Joining with the Scandinavians, also makes sense. However, remaining on their own with the DM after leaving the EZ also makes sense (since any departure from the Euro will involve contagion all round).

But Rome (and therefore Snark-cosy) won't like that at all. Totally counter to their overall strategy and would set them back well over a century. Bring it!!

Tsunami Effect's picture

bank guy-  great analysis and it seems like the most plausible solution... the "good euro" / "bad euro"

that would also enable the weakest to get liquidated/default without crushing the german and swiss banking duopoly.

greece is like what, 1.5% of the EU economy?  no banking just debt to the banks.  foreclose on private property, negotiate land/hard asset backed bonds for the rest with the govt.

you would create a bifurcated system where the weak countries have to pay a higher yield, but their "bad euro" is devalued to the point where they can export a lot more than swiss/germans! 

it is the best idea i have heard in two years.

i knew those crafty swiss were up to something when they made that peg!

johnu78's picture

The whole global economy just needs to collapse so that way we can start over with something new, and hopefully something that will be far more stable than the bullsh*t economic system we have today.



kito's picture

dow futures up 25 points!!! its 7:32 pm, do you know where your shorts are?

rocker's picture

You must have been watching CNBC's Fast Money when some jerk who looked like PEE WEE HERMAN's brother said the Dow is going to 20,000.

Even if they have to liquidate all of Italy.  No, I am not making it up, you can't make this shit up.

Captain Kink's picture

what happens to the market under hyper-inflation?  20,000 would be easy.

candyman's picture

"RIGHT, takes an awful long time to be proven, in my experience."  patience, at times can be unbearable...

knukles's picture



A broken watch is right twice a day.
Believe me, I'm a professional.

Schmuck Raker's picture

As always, the MOST important detail is STILL missing: WHOSE MONEY?

dumbfounded's picture

Best laugh of the day yet !! I know that's sad but thanks anyway !!

Blank Reg's picture

Dude! Don't be a buzz kill!

Terminus C's picture

Ummm, that question is obvious, yours.

TruthInSunshine's picture

Even with rumors, there are only so many ways, mathematically speaking, to spin variations off of the initial one.

Hence, they're really stretching now.

I expect many more rumors, each one having even less credibility, and being greeted with incrementally more sarcasm, than the last one.

We've been able to peer into the minds of EU Member States, and most of us who are objective can honestly say that we've merely confirmed that the experiment of trying to patch together a union in what is an extremely diverse (economically, poitically, socially) Europe, sharing a common currency, was just an inherently flawed idea destined to fail.

In the simplest terms, the only way to hold the EU together as it now stands is a) to print so much common currency that inflation literally rises for European consumers and businesses to the point that the resentment that now already exists between Member States explodes, and it all fails anyways; or b) see creditors of EU sovereigns, banks and counterparties to derivatives take massive haircuts large enough to render many of them insolvent, given their exposure to the aggregate liabilities of EU DebtApocalypse.

The snake oil salesmen are claiming that the EU can be held together via the ECB, Eurobonds, etc., etc., but their claims can be dismantled systematically, because the solvent in the EU will not see their lives ruined by the reckless (and if their leaders, in some sort of push to keep a continued globalization on its tracks push this issue too forcefully, they will see uprisings in the heart of Europe).

NotApplicable's picture

You seem to be forgetting war. War is always a good motivator. Especially ones involving the three major religions of Europe. Then after the wars, the weary will settle back into yet another totalitarian union of sorts, only this time with a common fiscal policy to match the common currency.

Oh, and none of us are objective. All perspectives contain bias.

TruthInSunshine's picture

Yes, that uprising in the heart of Europe was an implicit reference to the sort of unrest that often is a precursor to wars; internal or external ones.

I honestly believe what are now fringe political parties are going to make a big comeback in Europe because of the crisis in the EU, which has only just begun. No matter how tolerant people claim they are, when their economic livelihood is suffocated in order to bail out those whom they see as reckless and undeserving, they get very angry.

NotApplicable's picture

It's like it's 1930 all over again. I can hardly wait to see what kind of monsters get empowered this time.

TruthInSunshine's picture


Hitler is a great example.

I am often reluctant to bring up political history, and try to stick to economic matters, because there is such a wide range of heated opinions on WWII and the events leading up to it, but I do not think Hitler would have been enabled had such crushing reparations been not been imposed on Germany post-WWI.

Those reparations literally put Germany into a deep depression, led to the hyperinflation Germans experienced, and radicalized the population.

Mike2756's picture

We have debt reparations this time around.

NotApplicable's picture

Well, you have to bring up history, as it's repeating before our eyes. Same exact play as before, impoverish one group at the expense of another, then incite both sides as to who's to blame.

Better yet, doing it all from the safety of a bank, far, far away.

GOSPLAN HERO's picture

The Treaty of Versailles screwed the Germans after WWI.

... it made the world safe for National Socialists (Nazis) and Communists. 

FMR Bankster's picture

Reparations were a big part of it but it was more complicated than that. Europe had a history of land grabs after wars and after WW1 almost 25% of all Germans were living on lands taken from Germany or in onclaves outside German soil. It's part of the reason there wasn't a bigger push back against Hitler's first moves.

TruthInSunshine's picture


The Treaty of Versailles is what gave rise to the imposition of massive financial impositions in the form of reparations (quite literally so large that they could never be paid back without debasing German money, causing hyperinflation and resulting in an epic economic depression - we're talking the 90% going to bed hungry type depression).

Perhaps the most humiliating portion of the treaty for defeated Germany was Article 231, commonly known as the "War Guilt Clause," which forced the German nation to accept complete responsibility for initiating World War I. As such Germany was liable for all material damages, and France's premier Georges Clemenceau particularly insisted on imposing enormous reparation payments.

The burdensome reparations, coupled with a general inflationary period in Europe in the 1920s, caused spiraling hyperinflation of the German Reichsmark by 1923. This hyperinflationary period combined with the effects of the Great Depression (beginning in 1929) seriously undermined the stability of the German economy, wiping out the personal savings of the middle class and spurring massive unemployment. Such economic chaos did much to increase social unrest, destabilizing the fragile Weimar Republic.


Treaty of Versailles, 1919


Gosplan, land/territory issues did, in fact, play a big role in giving rise to the ultranationalist right which heralded the rise of the Nazi Party. But I'd maintain that the everyday, crushing poverty seen, felt and lived by almost all Germans, as a consequence of staggering reparations, played a larger factor in the destabilization of Germany and the subsequent rise of Hitler.

phungus_mungus's picture

There is alot of truth and plenty of danger to your statement. 

History is replete with examples of some of the worst tyrants this world has seen, and nearly all of them came from Europe... 

Tompooz's picture

"History is replete with examples of some of the worst tyrants this world has seen, and nearly all of them came from Europe... "

That is a very Euro-centric view.   Have a good look around the world though the last century.  

How about the future? Where will the next global tyrant hail from?

i-dog's picture


The wars of the last century (two centuries, actually) were engineered to serve globalist political ends ... with hand-picked and financed dictators (Napoleon, Hitler, Lenin/Stalin, Mao).

The next war (if any) that will accompany a collapse of the globalists' dream will not have such a single leader, just many local warlords (eg. Somalia) - each trying to grab some local power, with local support, out of the mess.

The people of the various nation states and cultures should prepare to implement local representative governments as quickly as possible upon a collapse.

Dr. Richard Head's picture

Off topic, but retail fantasy about to come crashing down as conference calls within the REDACTED store retail operations tell of forthcoming retail store closings. End of January to be last days of operation for another block of stores. No article to confirm as information is fresh. I guess consumers can only buy so much stuffed REDACTED shit.

walküre's picture

They need more theme parks to sell peddle their over priced completely obsolete junk ... /sarc.

macholatte's picture

...the solvent in the EU will not see their lives ruined by the reckless... they will see uprisings in the heart of Europe.

That is presuming that the sheeple have a voice and choose to use it. Unfortunately, as we have already seen in the cases of Italy and Greece, without agitation by a union, the sheeple will continue to graze. The oligarchs have nothing to fear but fear itself.... as long as they stay out of Iceland.

TruthInSunshine's picture

I agree.

Although I always want to go to a place where events are taking place, so as to credibly judge the true state of affairs (I did this at the peak of the housing boom and bust, via traveling to Phoenix, Las Vegas, Miami & St. George, Utah, and three of these cities post-bust), traveling to Europe is not going to happen anytime soon - but word is that there is very deep resentment brewing in Germany and the select few solvent EU states, while we've all at least seen the tape of riots in Greece, Spain & even the UK, all being directly or tangentially related to the austerity measures proposed by particular governments and the EU, itself.

I personally believe that we'll see a lot more social and political unrest in the EU, because austerity is more likely to prevail (sorry to dash your hopes, Paul Krugman) over bailouts, as bailouts simply means a debasement of the Euro, dramatic inflation, and much larger relative destruction of living standards in donor EU Member States (e.g. Germany). Economic theory is one thing, but economic reality, where one can't be the baker who eats all their inventory of cakes and is able to avoid bankruptcy is possible, is another.

Real Money Wins's picture

Personally i think they should just ask Santa Claus for a big ole sack of cash...Problem fixed! I mean after all Santa started out by putting coins in childrens shoes...So he must be loaded right. Ta da Christmas bailout!!!!!

Captain Kink's picture


Well said.

What strikes me is that we here in the US don't have the same options....we will be bailing out our banks, our profligate citizens and our profligate government for a very, very, long time.  I already work until mid September before I make a dime for myself and new family ( after paying off the govt and my ex wife).  How much more do they think we can take?

Teamtc321's picture

"How much more do they think we can take?"


Captain you ask a very good question that imo should be front and center. It appear's, the patient's of the patient are getting very thin indeed.   

The Big Ching-aso's picture



This sucks.   It used to be rumors alone could solve everything.   Now we're having to deal with facts generated by the ones that started the rumors.

I don't know what factual rumors to believe in anymore.

NotApplicable's picture

Don't worry, as a matter of fact, I hear there's rumors of upcoming factual rumors that are going to fix it all, they've just got to get everyone aboard first, just as soon as they finish spinning the rumors from their last fact-finding mission, when lo and behold, they found no facts. But they're sure that they're there, somewhere, and they're sure that they'll find them somehow. They're not so sure they can agree on what they are, though.

Or so I've been told.

Manthong's picture

It's not the factual rumors of plans that I am worried about, its the rumored facts of plans which are of concern.

disabledvet's picture

plus the media get's to pile on and tell anyone who thinks otherwise "is a complete nut case." thank God for that!

Buck Johnson's picture

This is just a rehash of the original plan with promises backed with nothing that they might be able to do something, and  the markets didnt' take off.  Because they know two things.  One, who is going to buy these bonds that the EFSF is selling?  They tried twice to sell EFSF bonds to fund the instrument and both failed miserably and at a small bond offering.  And two, where is the money coming from to fund the 440 billion or 250 billion that will be leveraged.  Since they can't get the G20 (remember a few weeks ago) to fund it and the private sector isn't funding via the bond purchases (failed bond auctions), where are they getting the money from.  They are playing make believe and have no way of forcing anyone to give them money, they couldn't even get he private banks to take the 50% "voluntary" cut that they wanted (I bet anything that the banks shot back that they would get their money from the swap insurance voluntary or not).  They aren't trying to save greece or Italy or Spain and the others because they are good guys.  They are trying to keep these countries from defaulting and having the banks who lent to them go get the insurance money on all this toxic debt and the US doesn't have the money for it.



Barry Freed's picture

That and a 50 cents will get them a phone call.

NotApplicable's picture

There's still one in the stairwell of my building at work. I can't recall the last time I've seen someone use it, other than to pile their stuff on while talking on their cell phone.