German Budget Committee Caps EFSF Guarantees At €211 Billion

Tyler Durden's picture

Bloomberg has just disclosed a statement from the German Budgetary Committee which is critical to the future shape of the EFSF:


So far so good... But this...


...Is not good. If this is the core guarantees that can be levered up to 5x assuming a 20% first loss guarantee, it means barely $1 trillion can be insured. This is nowhere near enough to backstop the just noted €1.7 trillion in future debt rolls, not to mention the €X billion in bank recaps. It also means that a French downgrade, with S&P noted earlier is contingent on the country not falling into recession, an event which even Goldman has said previously is assured, would put the full weight of the European rescue squarely on the shoulders of Germany.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Ray745's picture

They mean the German guarantee portion of it, which is and has always been 211bn in the expanded EFSF.  However, once you back out the Portugal, Ireland, and Greece (1 and 2) bailouts, throw in a low ball 50bn for bank recaps, and another 50bn for what they are throwing around for the Greece haircut (giving greek debt holders EFSF bonds worth 50% of face) you are down to 200bn left in the EFSF, lever that up 5x and you are at 1 trillion max anyway.

flacon's picture

can be levered up to 5x

Just increase the leverage. Problem solved. 

FinHits's picture


Turns out those guarantees include unlimited interest of EFSF loans on top of the nominal issued EFSF bond face values. The Finnish Parliament had no clue about this when they approved EFSF, and are now calling for a revote/reissue of the EFSF bill: 

I wonder if the other 16 Eurozone parliaments realised in their processes that they are already on theoretically unlimited liability.

For sure, Germany is not on a hook on only EUR 211 billion, it is tens of billions, if not hundreds of billions more already with unlimited interest coupons and issuing costs.

 Any Germans here?

Did the German Parliament understand EUR 211 billion is not the maximum liability, but the total could be e.g. EUR 422 billion, if the Finnish news is taken at face value and the interest costs are also charged from Germany through the joint and several EFSF guarantees?


Gunther's picture

Unlikely that German MP's understood what they voted for. There was one video clip showing a MP being interviewed and not even able to state the size of the fund correctly.

More important, the supreme court ruled that the budgetary committee of the parliament has to approve all payments while the treaty stated that the money has to be paid as ordered by the bosses of the EFSF.

It seems like signing a contract with the fine print to be added later.

FinHits's picture

Scary. It could be that the whole EFSF 2.0 was signed so that only a very small fraction of Eurozone MPs or even governments understood it.


Also sprach Bundesbankpräsident. Ist gut. /2011/10/22/eurzone-germany-weidmann-idUSL5E7LM09E20111022

Two Towers AU AG's picture


Buck Johnson's picture

The question that must be asked is was the EFSF guarantee supposed to even be used.  You can guarantee anything, a guarantee is only as good as the guarantor giving the money on it.  I think this was the best they could do and even though it doesn't cover, Germany can't go back to it's govt. and ask for more without being thrown out. 

HelluvaEngineer's picture

Bots apparently can't interpret this.  Their masters are apparently already in the Hamptons.

Ratscam's picture

because it no a round number. Why not 220 instead of 211?

Quintus's picture

Excellent.  Imagine that!  Some legislators in Europe who actually care more about safeguarding the finances of their own country and its people than about propping up the Megalomaniac fantasies of the Brussels elite and their failed currency.

I wish we had some of those guys in the UK.

monmick's picture

I wish we had some of those guys in the UK.

Careful what you wish for...

Quintus's picture

Indeed.  I just think that the British people would be better served by a government that does not perpetually accede to the EU's (and IMF's) constant demands for our tax money to prop up a currency union that we specifically declined to join.

falak pema's picture

Quintus Arius... you don't need anybody else to blame for your fukked up economy. But then, in this western capitalistic meltdown..where beggar thy neighbour is Oligarch's warcry... you can thank God for having the City as millstone to bury you are your progeny into abyssal debt. You don't need the Euro to achieve that enviable state of levitation of fiat imposture and subsequent deflation. Look at the charts its all there, the UK is at par with Germany for banking exposure with a GDP base which is 50% smaller.

I don't mean 'you' personally but 'you' collectively.

jt17's picture

Bullish.  Buy on every piece of bad news.  And when the bailout is announced, sell the news.

jdelano's picture

just like earnings.  I think you may be on to it.  

broke433's picture

With ESFS levered 5x and in combination with EMU , this should be more than enough.

maddogs's picture

If it isn't enough? If consumption fall, for whatever reason? If revs drop? Saving the moment might just be the first trip to the well. 'Course without Mark to.. who can say...

YesWeKahn's picture

oh shiit, the market stops rallying. We need some better news, FT, Guardian, which one is next?

Quintus's picture

I think by now, we're reduced to publications that haven't used up all their credibility publishing planted Euro-rumours.

Next up I think it's OK! magazine with a special report from Brussels just next to the write-up of Lady Gaga's comments on the scope of religious symbolism in the works of Goethe.

Hephasteus's picture

Teen Beet. Rolling Bone and the super market tabloids still have lots of credibility left to blow through.

SheepDog-One's picture

Nowhere near enough.. lets face it, far more has been baked in, leveraged to the the mean time Robots seem stuck in a feedback loop and apparently cant decide whether this is *cntrl alt sell* or *cntrl alt buy* yet.

topcallingtroll's picture

All this sturm and drang to produce a peashooter?

No bazooka?

Haha! Most definitely the top is in for gold!

Topcall is back!

Dr. Engali's picture

On Monday we will change our mind and raise it to a jillion bazillion. Rally on.

TooBearish's picture

Lookit - this is not newsworthy - what will happen next week is annoucement that EFSF will be levered enough to take care of all the problems in EURO with absolutely no details or amounts given and the markets will love it - so lets all play the game BTFD....

buzzsaw99's picture

A trillion E from the efsf, a trillion from the imf, they can kick the can for three more years. throw in helicopter ben and it's a guaranteed bull market!

Mike2756's picture

Tell that to the Greeks throwing molotovs.

scatterbrains's picture

We'll all be throwing molotovs soon but it wont matter the banksters will have been paid and gone.

Dr. No's picture

There will be nothing from Europe over the weekend.  This process has been a long slog and is moving as intended.  Politicians do not want to decide anything.  They would much rather react to an event than prevent one.  Do not look for politicians to solve an economic problem.  I am short and will stay short through this weekend.

Piranhanoia's picture

Not to mention the shadow debt, shadow deriv's, shadow swap, pledges, credit swaps, RMBS and MBS (more bull shit)

broke433's picture

These aren't bots, everyone moved into bonds in anticipation of a Greek default which everyone thought would happen. Now everyone is in reverse mode because Greece will not default this year at least, banks will be backstopped by sovereign, and sovereigns will be backstopped by levered ESFS and EMU. The euro crisis of 2011 is over and it's back to rally on Bitchez.

SheepDog-One's picture

Thats hillarious if as you say everyone is running from 1 side of the boat to the other buying bonds today, then selling those and buying stocks hours later, then theyre getting creamed on fees alone nevermind the whipsawing prices. This is a suckers game, designed to trap the most sheep for the most shearing effect.

broke433's picture

Well the move to bonds started back in may or June and the move out just started about couple weeks ago when Europe said they will recapitalize their banks. The total exact opposite of what Bill Gross did at exactly the same time...

SheepDog-One's picture

The bigger point here is that once EFSF is announced, its right back to the drawing board square 1. 

afdestruction's picture

IMO we'll probably get a market response alot like with Operation Twist. Yea, the EFSF may do something BUT if its not up to par with general expecations, the rally will be DOA anyways. I highly doubt anything canl be done that people will just go WOW BRILLIANT, rally on, especially after a volume-less week

broke433's picture

What is a suckers game is gold and silver, totally manipulated. They market it as a safe haven when a someone buys $50,000,000 in short dated out of the money call options only to jack gold up for a nice $1,000,000,000 in profit and let it tank afterwards. Or when Sprott sells his silver 3 days before it totally collapses, twice.

virgilcaine's picture

They were expeting a stuffed holiday goose, instead got a sickly chicken.

LawsofPhysics's picture

How is this not an epic fail?

eurusdog's picture

the full weight of the European rescue squarely on the shoulders of Germany. Let's see how committed Merkel is when this happens.

"Why'd you take me out of my fucking house and kill my parents with me?! Ain't you committed to me"


spanish inquisition's picture

Are the potentially insured already queued up for the cash or are they going to claim they tanked when the ink is still wet. If you know you are holding paper worth 0.00, being first in line is critical in this game.


dereksatkinson's picture

Could someone post a link to the orginal article?  I don't see this news.  An earlier story is saying that leverage was not part of the vote, not that they voted against it.


From bloomberg:

"The budget committee in Germany’s lower house of parliament today approved guidelines for the European Financial Stability Facility that exclude proposals on how to leverage the EFSF’s firepower, Ulrich Scharlack, spokesman of the parliamentary group of Chancellor Angela Merkel’s Christian Democratic Union and its Christian Social Union Bavarian sister party said by telephone today."

Belarus's picture

Not to sound like a broken record, but it bears repeating: Germany not going all-in, which not many people expect to happen and rightly so, is going to be the Tarp 1 vote failure of Congress, where stocks smartly sold off 800 pts on the Dow the next day. 

With weak shorts long gone, the AGLO's having no bullish headlines to trade on next week, and no incremental buyers in the markets: expect the May 6, 2010 flash crash to look like a picnic with Yogi and Bo-Bo. It's going to be fucking epic.

Gief Gold Plox's picture

If there's one market pattern that has emerged lately is that there is never a shortage of marketable headlines. Hell even Bernanke can't print as easily as the mainstream media can spew out garbage on demand. Otherwise I agree and fully expect a no show from the EU summit, which oddly enough they have already prepared us for.

Mark123's picture

This whole idea of providing a percentage payout on the first x% of losses sounds A LOT like the entire fiasco with MBS in the USA.  It turned out that the debt was not AAA, and also the insurance was not there anyways.  So taxpayers footed the bill....100%.


So what they are saying is "we realize that Italian/Spanish sovereign debt is crap, but please buy it and we will guarantee you some protection when things blow up".  Ya right.  Why don't they just let the market set the interest rates, then write a cheque to Spain/Italy etc to bring down the cost of financing?  Oh right, that would show how screwed up the system is.  Can't have that.

topcallingtroll's picture

You just proved they are going to try to deceive buyers and delay the reckoning to european taxpayers.

When someone wont allow transparent pricing thru market mechanisms then we can always assume they are hiding something.

dereksatkinson's picture

The article says nothing..


"“We assume that the leveraging” of the European Financial Stability Facility “will be decided at the Brussels summit on Oct. 23,” Scharlack said by telephone today, adding that this decision would then have to be presented to the budget committee in Berlin for approval before Merkel could return to Brussels for a second European summit on Oct. 26."

earleflorida's picture

reality is a hard pill to swollow especially when it's used as a laxative

tony bonn's picture

"...Is not good. "

horse shit. it is 211 too many but anything which would lead to collapse of the house of cards ain't all bad.

Saxxon's picture

I'm thinking the Troika and many others are terrified of sell-the-news.

What else is left after they serve this triple-chocolate delight?

Austerity will kill demand and lending.  It all grinds to a halt.  No one is saved but the lamprey banks.

EPIC selling of the news, on tap.

THAT is why they are delaying as far as possible.

SmittyinLA's picture

FNM & FRE only had guarantees of $200 Billion, we all know how that turned out, now they have a permannet IV hooked up to the American taxpayer's wallet.