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Germany Cries: "Europe Is Coming For Our Money", Greece Promptly Obliges

Tyler Durden's picture




 

"Greece is an exception in the Euro Zone" - Angela Merkel, December 9, 2011

"Exception from ESM Seniority only applies to Spanish aid" - Angela Merkel, June 29, 2012

 

It took about a year, but finally Germany, with a little assistance from Merkel on Friday morning, has figured it out. And is now blasting it on the front pages of its various newpapers:

Translated:

Europe is coming for our money!

What else does Die Welt say:

When economic historians in a few years determine the turning point at which the euro zone turned into a debt community, they may refer to the last Thursday night. In those dramatic hours when Angela Merkel after massive pressure from Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy buckled - and agreed to an agreement whose scope is now very difficult to estimate.

Specifically, what is now painfully clear to everyone in Germany is that if indeed Merkel's declarations over the past few days are to be taken at face value, then Germay has just lost control over European supervision: a topic very near and dear to all Germans' heart, as up until this point money would be handed out only in exchange for conditionality. A move whie Welt calls a paradigm shift: "To date the Germans insisted that the €-aids come equipped with shackles. Money was always associated with reform programs that were monitored by the Troika of the EU, European Central Bank (ECB) and International Monetary Fund (IMF)." That is now no longer the case. At least according to conventional wisdom:

Precisely for this reason were countries like Portugal and Ireland long afraid to apply for assistance. Now dipping into the bailout pot will be far easier... The federal government has always stressed that any bailout will come with strict conditions. Now all has changed, partly because of pressure from the financial markets. Italy and Spain struggling with risk premiums at record levels. So far, however, they refused to implement emergency measures. That could now change. Monti has already cheered: "the Troika will never come to Rome."

Die Welt may be on to something: while in the case of the Spanish bailout, the European action opened the door for proactive demands for future assistance, what happened last week has also activated the retroactive lever, and the cries for equitable EFSF/ESM treatment (where there is no seniority for bondholders despite Citi's clear explanation the EFSF and ESM will always have implied seniority over other private sector bondholders no matter what promises politicians throw around) will now come from all the other countries bailed out by Europe. Because what kind of union is it if among the countries in distress some are more equal than others. After all, first it was only Greece who was an exception. Now it is Spain. Who will be the next exception?

But before we pretend to even answer that rhetorical question, we already know how long it took Greece to demand the same treatment as that offered to Spain: 24 hours.

From Kathimerini:

Athens to ask for EFSF deal to apply to Greece, too

 

The government is considering to ask for the European Council agreement of Thursday for banks to get direct funding from the European Financial Stability Facility (EFSF) to apply to Greece, too, even though the recapitalization of local lenders was agreed to be included in the state’s bailout agreement.

 

The issue was discussed, according to reports, during a meeting at the Prime Minister’s residence in Athens on Saturday evening, ahead of the visit of the representatives of Greece’s creditors from Monday.

And since in Europe now every beggar is empowered to be a chooser, there is no stopping how much Germany will have to pay out of pocket to keep the insolvent ones content.

Main opposition leader Alexis Tsipras urged the government on Saturday to press for local banks to benefit from the new system of direct recapitalization from the EFSF, or threaten to veto the European Union’s Treaty for Stability Co-ordination and Governance and refuse to accept the visit of the creditors’ inspectors in Athens.

Expect many more demands from Ireland and Portugal next. Also expect many more and far angrier headlines out of Germany.

All of this means, that as we calculated last July, with Germany no longer able to kick the can, Merkel will soon have to front well over 30% of its GDP and likely over 50%, just to keep the Eurozone alive. it also means that, as we said last July, spreads of core European bonds will soar in a great compression trade where the PIIGS become the core and vice versa, an outcome that will anger Germany even more as it bring the implied outcome of Eurobonds without Eurobonds ever having been activated.

There is however a catch: earlier today we speculated that Merkel's move was merely one that puts the Constitutional Court, and thus a broad referendum, in action. Already numerous parties are demanding that the highest court scrap the ESM as it is both undemocratic and unconstituional.

From Deutsche Welle:

The European Stability Mechanism (ESM) and the Fiscal Pact have been approved by the German parliament. But thousands of Germans have joined forces to take legal action against these measures.

 

The Euro Stability Mechanism's capital stock of 700 billion euros is intended to provide a buffer against the convulsions of the euro debt crisis. The 17 signatory states will each pay a proportional amount into the ESM - irrevocably and without restrictions - or set the money aside to be handed over, if required.

 

The signatory states came to an agreement on the ESM because, as is stated in the treaty, they are "committed to ensuring the financial stability of the euro area".

 

But opponents say that this should not be done at any cost, and using any means available. Dissenters are calling for more democracy, and there are a lot of them. More than 12,000 German citizens have joined "Mehr Demokratie" ["More Democracy"], the "Alliance for Constitutional Objections to the ESM and the Fiscal Pact".

 

They plan to file suits with the German Constitutional Court in Karlsruhe against the instruments being deployed to save the euro. Christoph Degenhart, a Leipzig-based expert on constitutional law, and Herta Däubler-Gmelin, a former federal justice minister, are spearheading the alliance, which also includes some of Germany's smaller political parties.

 

Another prominent critic is Peter Gauweiler, a parliamentary representative of the conservative Christian Social Union who has experience with lawsuits against euro bailout funds. He is fighting the bailout on two fronts: with a constitutional complaint, and with legal action against the federal government. He says, to date, parliament has not discussed the bill because important passages on the ESM are missing.

 

The Left party has launched a similar action against the government, and its delegates have also lodged constitutional complaints.

Also as we reported earlier, both Schauble and Weidmann would be delighted if things get to the referendum stage. And in the aftermath of last week's massive optical loss for Merkel, so will she. If it indeed gets to a referendum, Mario Monti may be far less exuberant with the outcome.

However, assuming that there was no grand master plan behind last week's decision, here is, once again, our math from last July showing just how much of Europe's bailout funding Germany has just footed. Keep in mind the context then was just Greece, as Italy and Spain were both "safe", now that is no longer the case. What hasn't changed one bit is the logic behind the amounts that Germany will have to backstop between Italy and Greece. To wit, from over 11 months ago:

  • An extension of the EFSF to cover Italy and Spain would require a €790bn (32% of GDP) guarantee from Germany

This number is even bigger now.

And what is truly hilarious is that all of this was already at the forefrunt of debate last summer, when the EFSF was once again the bailout ex machina, only then the world and capital markets were a little bit smarter, and realized that there was simply not enough cash to cover the funding needs of both countries. This in turn led to the whole 3x-4x leverage debate that would bring the EFSF to €1 trillion: a plan which was scrapped some time in October and promptly forgotten once it was deemed unfeasible.

In other words we are right back where we started one year ago! Next up: cue the debate over how to increase the funding ot the EFSF/ESM bailout complex. Just like last year. And cue the 3x-4x bailout fund leverage expansion discussions for August-September 2012, once again in carbon copy replica of 2011, all only to be quickly forgotten. Because institutional memories sure are short. And because there is just no more money left.

So for all those who have forgotten last year's full mathematical analysis (because math still trumps politican lies and empty promises any day), here it is. All over again.

* * *

The Fatal Flaw In Europe's Second "Bazooka" Bailout: 82 Million Soon To Be Very Angry Germans, Or How Euro Bailout #2 Could Cost Up To 56% Of German GDP

A funny thing happened in Euro spreads today. While the bonds of all PIIGS countries surged higher in price (and plunged in yield) upon the announcement of the second Big Bang bailout, the reaction in core Eurozone credit was hardly as exuberant, and in fact spreads of the two core European countries pushed wider by the end of the day, and over the last week. Why? After all the elimination of peripheral risk should have been seen as favorable for everyone involved, most certainly for those who had been seen as supporting the ever more rickety house of European cards. Well, no. Basically what happened today was a two part deal: the i) funding of future debt for countries that are currently locked out of the market (all the PIIGS and possibly core countries soon) or in other words the "liquidity mechanism" which is being satisfied by the EFSF "TARP-like" expansion, and ii) the roll-over mechanism for existing holders of debt which "allows" them to "voluntarily" transfer existing obligations into a "fresh start" Greece which can then emerge promptly from the Selective Default state that is coming from Moody's and S&P any second, and supposedly allow the country to access markets as a non-bankrupt country.

For all intents and purposes the second can be ignored, because as has been made clear over the past few days, and as will be demonstrated below, the actual rollover from non-Peripheral banks will be de minimis, the bulk of impaired debt being held by banks in the host countries as is, and used as collateral with the ECB in the form of par instruments for cash.

Now the second part of the mechanism was never an issue further demonstrated by the plunge in net notional in Greek CDS as core banks no longer needed to hedge exposure and instead opted to divest their holdings. This is merely a red herring that attempts to confuse the issues associated with the first, and far more important concept: the nuances of the EFSF and its imminent expansion. And expand it will have to, because in reality what is happening is that the net debt of the countries will end up growing even more over time for one simple reason: this is not a restructuring of existing debt from the perspective of the host country! Simply said Greek debt will continue growing as a percentage of its GDP, meaning it, and Ireland, and Portugal, and soon thereafter Italy and Spain will be forced to borrow exclusively from the EFSF. Therein lies the rub. In a just released report by Bernstein, which has actually done the math on the required contributions to the EFSF by the core countries, the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, "its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees." And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: "As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP." That's right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV. The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany's pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!

The Europarliament, ECB and IMF may have won their Pyrrhic victory today... But what happens tomorrow when every German (in a population of 82 very efficient million) wakes up to newspaper headlines screaming that their country is now on the hook to 32% of its GDP in order to keep insolvent Greece, with its 50-some year old retirement age, not to mention Ireland, Portugal, and soon Italy and Spain, as part of the Eurozone? What happens when these same 82 million realize that they are on the hook to sacrificing hundreds of years of welfare state entitlements (recall that Otto von Bismark was the original welfare state progentior) just so a few peripheral national can continue to lie about their deficits (the 6 month Greek deficit already is missing Its full year benchmark target by about 20%) and enjoy generous socialist benefits up to an including guaranteed pensions? What happens when an already mortally wounded in the polls Angela Merkel finds herself in the next general election and experiences an epic electoral loss? We will find out very, very shortly.

Below is Bernstein's full breakdown:

Continuation of the current strategy with a materially enlarged EFSF and private sector participation in liquidity support

Despite the failure of the current strategy, there is still a theoretical option of an extension of the current liquidity support with a materially enlarged EFSF that would also be buying government bonds in the secondary market. We believe this is the least likely option given the size of the fund required to achieve the objective.

An extension of the EFSF to cover Italy and Spain would require a €790bn (32% of GDP) guarantee from Germany

This strategy is not only unlikely to succeed but would also run into some serious structural difficulties. To cover 100% of the roll-over for Greece, Portugal, Ireland, Spain, Italy and Belgium as well as an allowance for bank support at 7% of the banks' balance sheets until the end of 2013, the support mechanism(s), would need to be able to deploy a total of €2.4trn in available funds.

Assuming the Greek Loan facility and the EFSM remain in place, the EFSF would have to increase its deployable funds from currently about ~€270bn to €1,450bn.

Given the 20% overcollateralization requirement on the current EFSF structure and the fact that countries that receive EFSF support are not able to provide valid guarantees mean that in order to create a €1.45trn funding capacity, the total fund would have to be €1.7trn. The guarantees to be provided by Germany would have to be €791bn or 32% of GDP.

There is a legitimate question whether in particular Germany would see the point of committing that kind of support to a concept that has so far been extremely unsuccessful. It also would expose Germany to a worst case scenario of a French downgrade. Without France, the guarantee need would rapidly move towards the whole of the €1.7trn. As the market is getting increasingly concerned about France, the odds are heavily stacked against an extension of the EFSF as a pure liquidity support mechanism.

If Banks were to participate in a liquidity expansion their contribution would be minimal

Within the current strategy one of the open questions is whether or not the private sector can participate by providing liquidity to the periphery countries. We believe this to be a fundamentally marginal discussion despite its enormous political importance.

Based on the stress test data released on Friday, we find that whilst the banks account for the majority of the very short term paper, their total share of the funding requirement into 2013 is just 23% and 16% of the total EFSF.

The question is how big the private sector participation could be. Taking the "French proposal" as a guide, the private sector participation would reduce the size of the EFSF by €137bn or 9% of the €1.45bn EFSF funding, assuming 70% of the debt is rolled over, 30% collateralization and 75% of banks participate.

The problem with this private sector participation so far has been the risk that this may be regarded as a default by the rating agencies. As a consequence the banks would have to write down these exposures to market prices. This exercise would lead to reported write-downs for the European banking sector of €75bn, 0.55 times more than the liquidity support that the EU is seeking. And in particular in Portugal and Greece the fallout of the MTM losses far outstrips the increase in liquidity.

Even more importantly, more than half of these losses would occur in the banks of the periphery countries themselves. In the absence of an open market for these banks, the losses would have to be made up by the governments themselves and subsequently added back to the EFSF utilization.


And there you have it: the cost of the euro not plunging today as a result of the ECB not proceeding with outright monetization, is that Germany is now the ultimate backstopper of all of Europe's risk. And while before, when the EFSF was just over €400 billion or so, the market could largely ignore the risk, a €1.5 trillion "upgrade" certainly changes the equilibria dynamics. In an attempt to avoid the appearance of inviting inflationary pressures on Trichet's central bank, Germany has directly onboarded the risk associated with terminal failure of this latest and riskiest "bailout" plan and in doing so may have jeopardized anywhere between 32% and 56% of its entire annual economic output. One wonders if the risk of runaway inflation is worth offsetting the risk of a plunge into the worst depression in the nation's history? It sure isn't for the Fed.

The most ironic outcome would be if the eurozone, in an attempt to prevent further contagion at the periphery, simply invited the vigilantes to bypass Italy (recall how everyone was shocked that instead of attacking Spain, it was Italian spreads that got destroyed in a manner of days), and head straight for the country on whose shoulders lies the fate of the entire EUR experiment?

Is Atlas about to shrug and topple the entire oh so heavy house of cards?

 

 

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Sat, 06/30/2012 - 23:17 | 2577977 Alpacanio
Alpacanio's picture

Good point ekm!

Sat, 06/30/2012 - 23:37 | 2578005 AUD
AUD's picture

I translate that as

Angela Merkel has been gimped in Brussels gangbang by Italian, Spanish & French homo's...

There's more but my German is a little rusty.

Sun, 07/01/2012 - 02:08 | 2578119 PontifexMaximus
PontifexMaximus's picture

Your german is quite accurate, you got the point. Don't forget that M. Draghi has screwed her already twice before, heavily from behind with his LTRO dick.....

Sat, 06/30/2012 - 23:37 | 2578006 knukles
knukles's picture

Anybody else hear an echo?

Sat, 06/30/2012 - 23:42 | 2578009 CrockettAlmanac.com
CrockettAlmanac.com's picture

Is that an albatross overhead or is it a black swan?

 

http://www.youtube.com/watch?v=PGwPSPIhohk

Sat, 06/30/2012 - 23:52 | 2578019 vincent
vincent's picture

Martin Armstrong stated last Christmas that Merkel would be overwhelmed, and Germany would buy into the charade

Sun, 07/01/2012 - 00:03 | 2578027 Peter Pan
Peter Pan's picture

Europe is hanging from a German thread and the fools around Germany think that can play the part of Tarzan by swinging from this thread.

Spain, Italy and the others just have to ask themselves whether the Euro would survive without Germany. And if they answer "yes" to that, then need to ask themselves whether a EURO without a Germany would have any success in lowering interest rates if they issued Eurobonds. My answer is "no".

The Europeans are fools to perservere with their current strategies but I guess even nations goes mad in crowds.

Sun, 07/01/2012 - 00:18 | 2578045 deflator
deflator's picture

"...then need to ask themselves whether a EURO without a Germany would have any success in lowering interest rates if they issued Eurobonds. My answer is "no"."

 I think at least in the short term it would certainly lower interest rates.  The various countries in the EZ can't print, the ability to print Eurobonds means there will be no default. Idiot investors still believe in the lower left to upper right chart of the past 150 years of persistent economic growth. They have no problem with extrapolating debt indefinitely into the future.

 What they do have a problem with is the possibility of being left holding the bag if some of these countries default which will happen if they can't print.

Sun, 07/01/2012 - 00:41 | 2578062 RockyRacoon
RockyRacoon's picture

Lower interest rates?  Hmmm.  That would mean that they could borrow even more, or rollover the existing debt to prolong the misery even longer.   You really think that lower interest rates is the panacea for all this?  Sorry that I might seen naive, but it all sounds like lower interest rates just gets things back to the old normal of piling up more debt.   I'll admit that international finance ain't my strong area, but, hey....

Someone needs to convince me that an interest rate indicates the strength of a borrower... or used to.

Sun, 07/01/2012 - 08:30 | 2578288 Peter Pan
Peter Pan's picture

Rocky, i agree that lower rates is not the solution. The problem is that nothing short of a debt purge can begin to heal the system and ths is going to be resisted. And when it happens it will be very painful.

Sun, 07/01/2012 - 04:46 | 2578177 falak pema
falak pema's picture

the financial world is hanging from the FED reserve thread and the fools around DC/WS...

Sun, 07/01/2012 - 00:40 | 2578064 Lore
Lore's picture

When do these elected representatives act in the interests of their respective electorates?

Sun, 07/01/2012 - 01:12 | 2578091 Temporalist
Temporalist's picture

Haha that was a good one.  Did you hear the one about the honest central banker?  Or the one about the unelected technocrat? 

Sun, 07/01/2012 - 00:40 | 2578065 q99x2
q99x2's picture

Have Monti call Obama and tell him the system's going to collapse. If Soetoro isn't ready to declare marshall law (because he is still not sure he will lose the election) then Ben will perform some under the table deed to re-inflate to the satisfaction of EU.

Problem solved. Last year Germany found a half trillion or so due to an accounting error--just when they needed it most. There's probably a lot more where that came from.

Sun, 07/01/2012 - 09:26 | 2578344 post turtle saver
post turtle saver's picture

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Sun, 07/01/2012 - 01:08 | 2578087 HD
HD's picture

This article made my weekend.  At the point German bonds come under real pressure - either the Fed backstops the entire EU or the wheels come off. Not that it would matter, because if Ben was indeed that insane - who backstops the US?

My guess is TPTB will do anything and everything they can to hold Germany together... It's going to be a hell of a show.

Sun, 07/01/2012 - 10:26 | 2578402 epwpixieq-1
epwpixieq-1's picture

"who backstops the US?" - an extremely relevant question

Soon enough, the reality will be the final ba(ckst/gdr)op, expressed in hard assets - real tangible value storage. Eventually, when you have an OBVIOUSLY ( because so far it has not been so obvious ) dysfunctional wealth distribution system, people return to the roots that connect them with the sensible reality, hide whatever health they have, try to collect more, be as less dependent on the system as possible and so on, or everything that expresses the other spectrum of one's trusted, and increasingly distrusted, system.

Sun, 07/01/2012 - 01:42 | 2578108 ptolemy_newit
ptolemy_newit's picture

So what is so wrong with NWO?  From what I see, hear and feel the current world is surely fucked-up.

If you travel in space and try to describe where you are from, what would you say (Kenya)!    The less bureaucracy from various methods of government the better we are.

We are but a small planet and we are all earthlings!!!!!!!!!!!!!

Sun, 07/01/2012 - 02:37 | 2578129 tkinfo
tkinfo's picture

Merkel is about to be replaced. :)

Sun, 07/01/2012 - 02:40 | 2578130 Vanna_Volga
Vanna_Volga's picture

If Greece gets EFSF money I think Sweden should too. It's only fair. After all they desperately needed to recapitalize their banking system in 1991 

Sun, 07/01/2012 - 03:06 | 2578136 Joe A
Joe A's picture

I couldn't believe that Merkel was so stupid/naieve to agree to this. Did she lose her control or does she indeed have a trick up her sleave? Anyway, the Germans and other northeners are getting really pissed off at southerners pillaging the coffers of the north.

Sun, 07/01/2012 - 03:17 | 2578143 Whatsoever
Whatsoever's picture

It is so obvios, the ZH is only helping those who now will be testing the german bonds.

Who is paying for you, Tyler Durden.

I haven't been able to see less truth in any comment  on this subject and more polemic lies.

Sun, 07/01/2012 - 03:43 | 2578149 Nussi34
Nussi34's picture

I am getting sick and tired of our German governement. I was never a radical. But trust me it is more likely that I will vote for Nazis or whatever next year, but not for any party that supports the EU or the Euro or the fucking PIIGSF

Sun, 07/01/2012 - 04:28 | 2578168 Inthemix96
Inthemix96's picture

Good for you Nussi34.

When you take from people there democratic right to elect the government who serves them, all they are left with is nationalism.  I do believe our fine Mr Nigel Farage coined that phrase.  But alas he is right.

Bring it down fuckers, bring the whole fucking thing down.

Sun, 07/01/2012 - 05:04 | 2578185 Nussi34
Nussi34's picture

Working on it. Sending my capital outside of the EU by the boatloads.

Sun, 07/01/2012 - 05:54 | 2578211 Whatsoever
Whatsoever's picture

Just get a life and just get informed - and things will look better.

Greetings from Vienna, you wannabe Nazi.

Sun, 07/01/2012 - 03:51 | 2578150 slackrabbit
slackrabbit's picture

Germany will hold back unless it get gold as security. As soon as the PiGS break their deficit conditions Germany will leave blaming the PIGS for breaking the agreement. Then they can take the PIGS gold with them.

Considering gold went up $40 over night,   the PIGS will also be  reluctant to use it as security, which also works for Germany as a deal breaker.

Either way Germany wins because the PIGS can't stop being PIGS.

Sun, 07/01/2012 - 05:08 | 2578187 Peter Pan
Peter Pan's picture

This is exactly the point. If nations are not prepared to put their gold where their mouth is, then that is a sure sign that there is either no integrity in their dealings with one another or it is a clear indication that they have little faith in Europe's latest strategies actually working. So they want to keep their powder (gold) dry.

Personally I think the latter is more likely.

Sun, 07/01/2012 - 04:00 | 2578154 John_Coltrane
John_Coltrane's picture

What's interesting about this so-called bailout is that no funds will actually flow into insolvent banks until next year if you read the statement carefully.  That's 2013-by then there likely won't be much in the way of Spanish deposits anymore!  In the meantime, if you think this scam is working just ignore the equity markets and watch the bond yields in Spain and Italy.   If they stay in the 6-7% range or even go higher, they won't be able to roll the debt and then its game over.  There's significant auctions in both Spain and italy in the next week, so you won't have to wait long to get your short positions established.  Without ECB intervention the yields are going to stay high and even with it a failed auction is a high probability.  I'm betting yields hardly dip at all.  No private sector investor wants to experience another PSI event, as occurred in Greece whose newly issued debt is selling at a fraction of its, as issued value.    And who would buy (i.e. roll-over) new bank debt when all these banks will need to be nationalized and the bonds converted to equity?  By the way, isn't Greece almost completely out of cash to pay salaries of government workers and pensions?  I thought they needed another 5B EU by the end of this month?

Sun, 07/01/2012 - 10:03 | 2578377 CrashisOptimistic
CrashisOptimistic's picture

You don't seem to understand what happened Thursday night.

She caved.  She faces domestic opposition and she caved.

If Spanish bonds are north of 6% for upcoming auctions, they will demand the 2013 date be moved nearer, and she'll cave again and it will be moved nearer.

The lesson of 2011 holds, when we learned what they would do to Greek private bond holders.  ANYTHING.  They will do ANYTHING to keep the wheels turning.  If she has to cave to keep them turning, she'll cave.  If it equates to her giving German money to the EU so that it survives and continues to buy German exports, then she'll do that and in effect buy her own exports.

They don't care about "making sense".  They care about keeping the wheels turning.  They don't understand that oil scarcity is grinding it all down to nothingness.  They will just try to keep the wheels turning, waiting for a miracle that is not going to come.

 

Sun, 07/01/2012 - 04:21 | 2578162 Zodiac
Zodiac's picture

The conditionality described in terms of fiscal reforms and austerity always had only limited success.  Ireland and Portugal adhered largely to conditions agreed upon with the Troika to receive their bailouts.   Greece agreed to austerity to obtain the loans, but once the bailout funds were advanced, the Greek government always failed by a wide margin to follow through on the agreed tax collections, reforms, asset sales, etc.  Spain and Italy are too big for Germany to push around and TBTF, and are telling the Germans to go fuck themselves regarding draconian reforms that would send their economies spiraling downward at a faster pace.

Germany and its people have some unappealing choices coming up regarding the EU/Euro.  This is particularly true now that Germany's major ally in the fight, France, has gone all-in Socialist.  Rock meet hard place.

Sun, 07/01/2012 - 04:34 | 2578170 The Reich
The Reich's picture

The Untergang 2.0

Sun, 07/01/2012 - 04:49 | 2578176 genr8n
genr8n's picture

This intention to work on an MoU to undertake a "Bailout", subject to constitutional approval from multiple countries, etc etc is exactly what Germany, Italy and Spain needs to make some room for the impending "Nien" to Greek requests for further assistance.  So by this Friday I expect that we'll have a refusal to provide additional accommodation to Greece, backed by release of details containing a litany of Greek austerity failures.  With exit looking highly likely any moment IMF will offer a $5B transition loan to facilitate exit plans.

The real question however is whether a Greek collapse is positive or negative to the EURUSD.  I suspect it would be positive (200 pips) once the outcome is known (ie certainty) as there would be progress in cleaning up what seems to be an increasing complex mess.

 

Sun, 07/01/2012 - 04:57 | 2578178 JuicyGrabs
JuicyGrabs's picture

Even if Germany chooses to backstop PIIGS  + France, what happens when German money runs out? Germany itself has a much bigger debt to GDP than most people realize.

Sun, 07/01/2012 - 06:14 | 2578218 poldark
poldark's picture

This is very true. If you add up all the fiscal commitments to the EU Germany has debt/GDP of 140%.

http://www.zerohedge.com/news/germany-final-frontier-whose-true-debtgdp-now-140

Everyone talks of Germany paying for this and that as though Germany has a bottomless pit of money.

Sun, 07/01/2012 - 04:50 | 2578179 genr8n
genr8n's picture

PS Wiggins +1

 

Sun, 07/01/2012 - 05:05 | 2578186 ejgej
ejgej's picture

I'm beginning to think things will go otherwise. What happened on EU summit seems they found an engine that will allow the ECB to enter the Europeand bond auctions de facto as a normal bank, through the EFSF mechanism, buying bonds when spread on bund goes over 300pts.

The very result is a political victory for Germany, if you see closer, because there isn't any condivision of real debt, as the mechanism works only on keeping lower interest rate of next bond auctions, and Ecb will print what it needs to keep interest low without collateral warrants. All the money lent to a country will have to be repaid by that country, in any case. There is on a long distance a risk of political pressure on ECB by single countries to ''forget'' money lent in these years (and this is inflation!), but this mechanism is going to be implemented through the years.

The ECB wiill buy bonds following some conditions, predetermined year by year with each european governments, who has to accomplish on reforms and budget balance less than 3%, without any futher intervention of Euro Troika. What's nice is that eveything will be done through the ECB, pushing out of the door in most of cases the IMF, that would be no more necessary. It means ECB is going to become de facto not only an  ultimate lender, but the very first nucleus of a European Treasury.

Because on each bond auction there are only few billios put on, the ECB won't have the refill the EFSF so much to keep interest rate lower than 4%. Otherwise, it will be quite a big problem for hedge funds, as they have now to fight against endless ECB capacity to print, just like the FED.

Even more problems for extra Euro hedge funds will come from two EU directives to operate within a few months, because it will be allowed to work on bond auctions only to funds recorded inside the EU, which will have to certificate some conditions to operate, and because it's going to change the rating method of bonds, whose rating will have to be paid to agency by bond buyer instead of bond issuer. That means, for example, that a rating certificate for Deutche Bank paid by Deutche Bank to the 3 sisters won't be accepted anymore, while if you have a partecipation inside the 3 sisters, the 3 sisters won't be able to give a legal rating to you.

This is CAPITAL PROTECTIONISM. That's where the gathering of decisions taken by states in EU goes to:  money  inside the EU will be moved more and more by EU recognized actors only, and the choice will become geopolitical.

Sun, 07/01/2012 - 05:14 | 2578188 ejgej
ejgej's picture

Decisions taken by EU push out IMF and banks from having to buy all national Tbonds. This may allow banks to fail with less harm to state debt. The ECB will become the great mover behind the EFSF mechanism,  and because ECB doesn't care of any rating warranty, because  it can prints just like the FEd, international ratings are becoming less and less important in EU. That's the Fact!

Sun, 07/01/2012 - 05:20 | 2578190 Legolas
Legolas's picture

The part of the article that mentions the "more equal than others" and Greece's 24 hour response may actually identify what will be the catalyst for the quick breakup of the EU (other than the realization that there really isn't a fix for the problem).

Sun, 07/01/2012 - 05:43 | 2578202 poldark
poldark's picture

We talk about Germany being angry, what about the Netherlands, Luxemburg and Finland?

You won't hear any complaints from France because they are next on ranko for

the begging bowl.

Sun, 07/01/2012 - 05:44 | 2578203 mito
mito's picture

They will suck out the funds from every responsible EU country and then leave.

Look at it as a WWII payback, but not sure why my country [Slovakia] has to bleed also :(

Sun, 07/01/2012 - 05:47 | 2578208 poldark
poldark's picture

Germany should reduce the retirement age to 50 and double the pension.

When they run out of money they can join the queue at the EU begging bowl. 

Sun, 07/01/2012 - 09:56 | 2578370 ISEEIT
ISEEIT's picture

Nice.

Me laugh.

Sun, 07/01/2012 - 06:32 | 2578221 Linus2011
Linus2011's picture

As a German i must say most of your opinions are just nonsense. There is really no superior Über-Germany that wants to establish a 4th Reich. The current German politicians are neither smart nor have a Grand German Plan for the future. 95% of them are just completely stupid and do not know what to do in this situation. Look at the ESM vote. Whereas about 1/4 of the Germans i know are preparing for the complete EU meltdown since years.

There will be no resistance until most of the sleeping Germans lost their existence. However the resistance will be extreme afterwards and new Anit-EU (Freie Wähler) partys will soar and will trigger a 180 degree turn.

The current responsible political class and banking system will get wiped out. I predict that some party members that voted for the ESM (all documented) will get into personal security problems in their home district in the near future.

Sun, 07/01/2012 - 07:01 | 2578242 fiddy pence haf...
fiddy pence haff pound's picture

Linus, the dumb 95% in the reichstag are just dupes for 

Merkel and Schnauzer.

I foresee Eurobonds

Sun, 07/01/2012 - 08:34 | 2578291 wonderatitall
wonderatitall's picture

if only they would heed reich marshall obama eh...take take take, it will work out...in the gulags. love to see you there

Sun, 07/01/2012 - 10:00 | 2578374 ISEEIT
ISEEIT's picture

Yeah well pretty sure you live in a police state motherfucker and although you are correct about a wipe out I wouldn't underestimate the damage that will ensue and it sure as shit won't just happen to THEM it's going to cost us also.

Bad.

Sun, 07/01/2012 - 11:05 | 2578443 My Days Are Get...
My Days Are Getting Fewer's picture

Linus,

 

I have to disagree.  While I am an American, I have worked very closely with the Mittelstand for almost 40 years.  I just wrote the following for what it is worth:

 

"Die Welt" - published a short piece, entitled "Europa greift nach unserem Geld", now translated into English at:    http://www.zerohedge.com/news/germany-cries-europe-coming-our-money-greece-promptly-obliges    What drives to the heart of the matter are the 39 pages of comments from German readers to that article.  Its seems that fear and loathing can quickly reveal the truth via well-articulated thought.   I collected some of the better comments for a post-mortem review of these events in years to come.  And, I will not attempt to share them here because the same thoughts are well known to ZH readers with brutal comprehension.  And, these writers represent a very small minority of Germans. The general population is focused on soccer and not economics.
   George Soros, the spokesman for the banking elite, has realized his personal dream:  The emasculation of Germany.  Germany weakened politically.  Germany eviscerated financially.  And ultimately, Germany to be striped of the one driving force that has kept it on the cutting edge of innovation and new technology: the German Work Ethic.
   The comments to the article do not refer to Germans as "debt slaves".  No.  They speak of Germans as "wage slaves".  Germans to work until age 67 for a pension, when the French retire at 60 and the Greeks at 55.
  Those writers know, that come Monday morning, 15% of their bank savings will be transferred out of Germany per the EMS concept.  And, when France is not able to pay its EMS quota, the German quota will rise to between 35% and 50% of Germany's GDP.
  For the banks and the EMS transfer recipients, this is a free lunch.  Because Germany is more efficient, it will keep on making and exporting better products; sustaining a positive cashflow through a perpetual trade surplus; and maintaining the wherewithal to transfer large sums of money out of Germany.
  I can tell you that this will not happen.  The EMS concept is just like the reparations program set up after WWI. Not punishment for starting a war.  No.  Punishment for fiscal prudence, economic success and independence. Neuter Germany and create fiscal dependence. The only European nation that can resist this process is Switzerland because super-rich people have parked trillions there.  All others will be absorbed into the body of dependency.
  No Hitler or new Third Reich will emerge from all of this.  The Germans will not start a civil war.  They, like our fellow Americans, have been pacified.  Why should Germans brawl and fight among themselves, when the French, Spanish and others just watch the German spectacle on TV and booze it up.
  Water takes the path of least resistance.  And that's what the Germans will do.  They will lose their competitive edge. Become less precise.  Less creative. Take fewer risks.  Publish fewer patents. Lose concentration. Not work or study as hard.  Take more sick days.  Game the system for disability payments.  Semi-voluntarily be absorbed into commonality of Europe.  And, adopt the lifestyle and customs and practices now prevailing most other European countries - the sickness of lassitude.  The sickness of greed is contagious.  It mutates and debilitates.
  The concept of a free lunch from Germany will destroy Germany.  Soros will have his revenge on the Germans for WWII.  And, the end result will be that Europe will become economically non-competitive and sick.  Asia will continue to work hard and innovate.  And so will the Americans because there is no social safety net in America for our citizens to fall back on.  

 

 

 

 

Sun, 07/01/2012 - 11:24 | 2578470 OttoMBMP
OttoMBMP's picture

I fear you are right. 80% of what you expect is already reality.
A small group of "real Germans" might survive.
You will hear from us. We might be just inventive enough.
Es lebe das heilige Deutschland!

Sun, 07/01/2012 - 11:39 | 2578488 Winston of Oceania
Winston of Oceania's picture

Sorros is still a National Socialist as he was when a member of the Hitler Youth, Germany did not start out in the 30's to conquer Europe only political opposition. When a totalitarian state is born it feeds first on its own peoples, but has such a hunger that it soon must look beyond them to the world around it. To feed a war economy you must forever expand your resources as your end product serves no productive purpose whatsoever.

Sun, 07/01/2012 - 06:58 | 2578241 fiddy pence haf...
fiddy pence haff pound's picture

I don't know why you're crunching all those numbers, you nerds.

 

The plan, brought about by GS's sub-commandantes in Europe

was for Eurobonds. They are designed to get many fees for

the GS, and for GS to manipulate and ponzi up some crimes

on them.

the only other path, in this still somewhat reality-based economy is a Lehman moment, just over the horizon.

 

Merkel's toing and froing is just designed to make Germans dizzy

such that they'll allow Merkel to do what has been planned.

 

Blaming the Greeks is just the divide and conquer stuff. Some idiot Schnitzel-faces still think Greece is to blame, because Krauts tend to be racist and still think themselves superior.

If they're superior , they have to stop Merkel, at all costs. Otherwise, what looks like the 5th Reich will be Weimar all over again, for Germany, followed by...? Well, Golden Dawn, of Greece.

 

Sun, 07/01/2012 - 08:32 | 2578290 wonderatitall
wonderatitall's picture

...a racist calling someone racist, how fun. must be one of our loving hitler adoring democrats

Sun, 07/01/2012 - 08:37 | 2578294 Pat Fields
Pat Fields's picture

Why is no one forthcoming in discussion of the deepest underlying cause for the cumbersome debts merely consequent to it? That cause is the banknote scheme of ‘money’.

Because all currency is created as loaned principal at interest, with no other source from which to raise the interest servicing funds, but to go BACK to the banks for MORE borrowing of principal … at interest … on the entirety of outstanding currency (whether in physical or digital form), it is obvious that debt can NEVER be extinguished without collapse of the whole stupid concoction … IF the object is to preserve it.

On the other hand, there need be no upheaval, if the scheme were to simply be abandoned by resetting all virtual currencies at their present purchasing power basis, realized in an appropriate, original metallic expression. No one would either suffer or gain. All wages, prices and accounts would remain numerically identical, except that their core substance would be real, and most importantly, incur no further intrinsic interest compounding!

Capital accumulation could resume again and investment in productive ventures wouldn’t be crippled by non-systemic, automatically co-generating currency inflation and co-ordinate indebtedness!

 

Sun, 07/01/2012 - 08:43 | 2578306 I am Jobe
I am Jobe's picture

This Company Admitted To Illegally Sending US Military Technology To China

http://www.businessinsider.com/united-technologies-broke-military-embarg...

 

Sun, 07/01/2012 - 08:45 | 2578309 BattlegroundEur...
BattlegroundEurope2011's picture

Is this relavent?

 

Sun, 07/01/2012 - 11:26 | 2578473 Winston of Oceania
Winston of Oceania's picture

Work for United Tech?

Sun, 07/01/2012 - 08:44 | 2578308 I am Jobe
I am Jobe's picture

Squid is feeling left out.

GOLDMAN: Stocks Are Headed Lower And The Drop In Oil Prices Won't Save Them

http://www.businessinsider.com/goldman-stocks-are-headed-lower-and-the-d...

Sun, 07/01/2012 - 08:49 | 2578311 JackT
JackT's picture

At some point, someone is going to say "Eff it" and pull the trigger on WW3 for it surely is the only way that the mess will be ended.

Sun, 07/01/2012 - 08:57 | 2578319 I am Jobe
I am Jobe's picture

U nailed it. I think it is almost here.

I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.

Albert Einstein

Sun, 07/01/2012 - 11:25 | 2578471 Winston of Oceania
Winston of Oceania's picture

Why do you think that Germany is being scapegoated in the press? The UK and the US are at it again with the Frogs, this is nothing more than the re-implementation of war reparations from WWI. Germany will now be forced to turn Eastwards for both economic and military security, WWIII is on deck casting off the bat weights and smacking the dirt from its terrible cleats.

Sun, 07/01/2012 - 08:53 | 2578314 Chartist
Chartist's picture

Since 90% of the income increase in the last decade went to the top 1% in the US, the Euro analogy seems appropriate....Eventually, the top 1% are going to feel pressure to give it all back

Sun, 07/01/2012 - 09:06 | 2578321 I am Jobe
I am Jobe's picture

Must thank the sheeples for enabling the wealth. Buy Buy Buy crap and be proud of the toys and made the CEO's rich and then whine. Look at AAPL, app downloads are on the rise and who benefits from this. People will never learn as long as they are entertained in the USSA.

Sun, 07/01/2012 - 09:50 | 2578365 ISEEIT
ISEEIT's picture

Hey,,,

Nobody said it was gunna be easy or cheap right?

Forget the German high court. Nobody is gunna be the hero.

All the bases are covered and THEY are several steps ahead of where you think they are. This shit is not random and is not the 'mess' it appears to be.

It is actually going down as planned.

A LONG time ago.

Sun, 07/01/2012 - 09:55 | 2578369 bshirley1968
bshirley1968's picture

Five will get you ten that Merkel changes positions in the next 5 days.  If she doesn't, it will be changed by some "court" or ruling by another legislative body.  This game will go back and forth for another 3 months.  Just like with Greece, it was "to bail out or not to bail out" over and over again.

Even IF they all agree to eurobonds, where in the hell are they going to get the money to buy the bonds?  The banks are broke.  The ECB is having to prop up the sovereign bond market daily to keep rates from skyrocketing.  No private money in their right minds are going to touch those bonds since the whole eurozone is broke and getting "broker" by the day.  Eurobonds will equal a "print" because the money will have to be printed to buy the bonds.  It will take weeks, even months, to get eurobonds on the books once they are okayed.  Spain and Italy don't have months. 

All markets are nothing but crack-whores.  Yesterday was a hopium injection.  Reality from this high will set in by Tuesday afternoon, and then the crack-whore market will throw a fit until it gets its next hit of hopium.  But just like a crack-whore who tries to find happiness that never comes in a needle, the market is going to realize one day that the happiness it is looking for will never come from the hopium or the print fest when it actually happens.

Sun, 07/01/2012 - 11:15 | 2578458 Winston of Oceania
Winston of Oceania's picture

I'm going back to barter and cash, real money not worthless script. If you don't play with their money they can't steal from you by inflation only taxation as I would NEVER encourage anyone to run a casual business to keep the banksters, er I mean Gub'ment from their due. Simply adjust your pricing for the market value in PM's for the day and cash out by making your PM purchases often.

Sun, 07/01/2012 - 10:17 | 2578397 RobotTrader
RobotTrader's picture

All this talk is simply mental masturbation.

 

The fact is, the markets made another intermdiate low, soon the crisis will be over, and we'll be back to "Green Shoots", "Cash For Clunkers", etc. again.

And all the bears will be once again scratching their heads, wondering why the world didn't implode as King World News and the rest of the doom and gloom community predicted.

Sun, 07/01/2012 - 11:46 | 2578508 yogibear
yogibear's picture

The PIIGS know they have a host (Germany) they can leech on. Bernanke and the Federal Reserve banksters will be pushing for infinite printing so they can join the US in trashing their currency.

Sun, 07/01/2012 - 11:57 | 2578534 RoadKill
RoadKill's picture

What depresses me about this article is that I see alot of my own mistakes in its tone. Us EU bears got kicked in the nuts on Friday. We have to admit it and analyze the new situation RATIONALLY. This article sounds like something I would come up with to rejustify my position and ignore reallity.

What we have here is almost an exact replay of one of the key themes of the civil war. States rights vs federalization. Their are powers pushing for a united states of europe and their are powers that want to keep it a loose federation. Friday a key federation power got its ass handed to ot on the battlefield. So now the question is, has the tide of war turned? The federalists had been winning. But did their main army and key capitaljust get razed?

Im not sure.

I do know this. A USE solves many of the problems. Mutualizing debts is ultimately bad for the Germans much lile it was bad for New Yorkers to have to rebuild the South. But it will kick the can not 1 year but potentially 10.

What I need to see to continue to bet against the periphery is a revolt by the German people against Merkle. She is a general that just suffered a mortal wound that will bleed her out as Greece and Portugal demand pari passeau treatment with Spain. If she continues to lead Germany she will loose to the forces in Brussels.

Sun, 07/01/2012 - 12:58 | 2578581 magpie
magpie's picture

The opposition to Merkel (Social Democrats and Greens) have far better connections to Brussels/Banksters/Bilderbergers than even Merkel herself and already voiced their direct support for Eurobonds, Hollande and any fraudulent 'Growth Pact' with the periphery states. The anti-EU pockets of resistance in the center right and the left fringe don't amount to much.

I myself have taken to a tactical regrouping and am awaiting developments on the Farage-Cameron frontline...'No Merkel style flipflopping please, we're British !' 

Sun, 07/01/2012 - 15:32 | 2578995 bshirley1968
bshirley1968's picture

Get a clue.  We didn't get an all powerful federal government without a massive war, and they won't get the United States of Europe without a massive war.  At some point the people are going to tell the politicans to move over because this isn't going to happen.  They will not give up sovereignty without bloodshed.

Sun, 07/01/2012 - 12:44 | 2578626 optimator
optimator's picture

 

The next German delegation going to Paris for next meeting should drive through the Ardennes as quick as they can. Point made.
Sun, 07/01/2012 - 13:07 | 2578673 jonjon831983
jonjon831983's picture

Hmmm what I got out of this post..

1) Germany is holding everything up.

2) Germany will be supporting €791bn or 32% of GDP

In scenario of French downgrade

3) Germany will be supporting €1.385 trillion, or 56% of GDP

Sun, 07/01/2012 - 13:43 | 2578772 Grand Supercycle
Grand Supercycle's picture

More Equity Rally Expected.

Any traders predicting a multi month equity rally apart from me ?

As of June 30th I am.

Last week was the turning point.

Further equity upside and USDX weakness expected this year according to my analysis.

However the SPX big picture remains very bearish and unfortunately this will not change.

http://www.zerohedge.com/news/2012-12-24/market-analysis

Sun, 07/01/2012 - 14:21 | 2578874 elwu
elwu's picture

"Next up: cue the debate over how to increase the funding ot the EFSF/ESM bailout complex"

This debate started already on very high levels in the ECB and the ClubMed governments about one hour after the traitor bitch Merkel caved in in Bruxelles.

Sun, 07/01/2012 - 20:41 | 2579547 Tommy Gunner
Tommy Gunner's picture

What I don't understand is why terrorists are not looking at the fires in Colorado and saying 'eureka - let's get 10 jihadists, some motorcycles, and some Bic lighters... ride around the forests of America this summer ... and drop a few sparks into the tinder'   Imagine the damage they could do the economy - but more importantly to the psche of America. 

Hundreds of massive forest fires burning out of control all at once would wreak havoc.

It makes you wonder - if I can think of this - why can't they - considering the lengths they went to to orchestrate 911.  Something wrong with the picture?

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