Bloomberg has just disclosed a statement from the German Budgetary Committee which is critical to the future shape of the EFSF:
- GERMAN CDU/CSU PARLIAMENTARY SPOKESMAN SCHARLACK SPEAKS ON EFSF
- GERMAN BUDGET COMMITTEE SETS CONDITIONS FOR EFSF LEVERAGING
- GERMAN BUDGET COMMITTE GUIDELINES VOTE EXCLUDES LEVERAGING
- BUDGET COMMITTEE SAYS EFSF REPOS MUSTN'T RAISE GUARANTEES
- GERMAN BUDGET COMMITTEE SAYS EFSF LEVERAGING MUST EXCLUDE ECB
- GERMAN BUDGET COMMITTEE BACKS EFSF DRAFT GUIDELINES
So far so good... But this...
- BUDGET COMMITTEE SAYS EFSF GUARANTEES MUSTN'T EXCEED EU211 BLN
...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.