Germany Demands "Managed" Greek Default And 50% Bond Haircuts In Exchange For Expanding EFSF, Peripheral "Firewall"

Tyler Durden's picture

Back on July 21, the same day as the Greek bailout redux hit the tape, we speculated that the biggest weakness in the Second Greek Bailout is that the EFSF would have to be expanded to well over the current E440 billion (which even at its current size has not been fully ratified in Europe, and based on recent events may not be implemented until 2012 thanks to Slovenia and Finland), or about E1.5 trillion (and possibly as much as E3.5 trillion). The reason this is a "problem" is that it would have to come exclusively at the expense of Germany which would have to pledge anywhere between 50% and 133% of its GDP (as France would have long since been downgraded and hence unable to participate in the EFSF at a AAA rating). We also assumed that the debt rollover with a 21% haircut would not be an issue as it should have been a formality: on this we were fatally wrong - the debt rollover plan has imploded and means that the entire Greek bailout has collapsed as some had expected. And now that it is clear that contagion is threatening to sweep through the core, it is back to Germany to prevent the gangrene, no longer contagion, from advancing beyond the PIIGS. However, in order to prevent a full out revolution, Germany's economic elite has said it would agree to an EFSF expansion and hence installation of European firewall, but at a price: a "controlled" default by Greece and 50% haircuts for private bondholders (as German banks have long since offloaded their Greek bonds).

This means that "Lehman" is indeed here: just like back in 2008 Paulson et al thought they could contain the adverse effects of a Lehman bankruptcy, while the financial system ground to a halt 4 days later when money market funds broke the buck, so now Greece is somehow expected to remain in the eurozone even as it files bankruptcy. How or why they think the market will buy any of this is beyond stupefying, but we are sure all those armies of lawyers who never have a practical sense of what actually ends up happening in the real world, and who are poring over tomes of EU and EUR charter to see if they can file Greece without expelling it from the Eurozone, certainly has something to do with it.

So as part of this new strategy, here are the three key components of the plan to "firewall" contagion, via the Telegraph.

Sources said the plan would have to be released as a whole, as the elements would not work in isolation.


First, Europe’s banks would have to be recapitalised with many tens of billions of euros to reassure markets that a Greek or Portuguese default would not precipitate a systemic financial crisis. The recapitalisation plan would go much further than the €2.5bn (£2.2bn) required by regulators following the European bank stress tests in July and crucially would include the under-pressure French lenders.


Officials are confident that some banks could raise the funds privately, but if they are unable they would either be recapitalised by the state or by the European Financial Stability Facility (EFSF) – the eurozone’s €440bn bail-out scheme.


The second leg of the plan is to bolster the EFSF. Economists have estimated it would need about Eu2 trillion of firepower to meet Italy and Spain’s financing needs in the event that the two countries were shut out of the markets. Officials are working on a way to leverage the EFSF through the European Central Bank to reach the target.


The complex deal would see the EFSF provide a loss-bearing “equity” tranche of any bail-out fund and the ECB the rest in protected “debt”. If the EFSF bore the first 20pc of any loss, the fund’s warchest would effectively be bolstered to Eu2 trillion. If the EFSF bore the first 40pc of any loss, the fund would be able to deploy Eu1 trillion.


Using leverage in this way would allow governments substantially to increase the resources available to the EFSF without having to go back to national parliaments for approval, which in a number of eurozone countries would prove highly problematic.


The arrangement is similar to the proposal made by US Treasury Secretary Tim Geithner to the eurozone at the September 16 EcoFin meeting in Poland. Gathering turmoil in financial markets has convinced Germany to begin work of some kind of variant of the US plan, despite having initially rejected the notion as unworkable as threatening to compromise ECB independence.

In other words, Germany will be humiliated to appear weak after conceding to Geithner's proposals even after everyone in Europe already took turns at mocking the tax cheat. Which is why Germany has decided in turn to humiliate Greece, and in the process initiate a chain of events that will bring the end of the Eurozone, albeit, mercifully, much faster.

The proposal would be hugely sensitive in Germany as its parliament has yet to ratify the July 21 agreement to allow the EFSF to inject capital into banks and buy the sovereign debt of countries not under a European Union and International Monetary Fund restructuring programme. The vote is due on September 29.


As quid pro quo for an enhanced bail-out, the Germans are understood to be demanding a managed default by Greece but for the country to remain within the eurozone. Under the plan, private sector creditors would bear a loss of as much as 50pc – more than double the 21pc proposal currently on the table. A new bail-out programme would then be devised for Greece.

And with incompetent hubris bringing us here, we are happy to see said hubris is still front and center. Because if Europe really thinks there is such a thing, quadrillion sin USD FX swap lines notwithstanding, as a "managed" bankruptcy, then it fully deserves to ride into the sunset, battling the windmills of evil shorters and vile bloggers, on the much suffering back of Don Quixote's Rossinante.

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eisley79's picture

Truth Hurtz Bitchez


managed default, like maniac_researcher(!/designerdean) had a managed deletion of his account .

Don't mess with the zhedge LOL

So Close's picture

I do not understand why the strong EU countries don't break away and form there own EU.  EU North?  EU ver 2.0?  EU Validus?  What is in it for them if they stay?  They will be fighting the fiscal debacuhery forever and I can not see how they will win.

Ancona's picture

They can't "break away" now. This shit is as contagious as crabs in a Vietnamese whorehouse. There are four other countries who are in just as deep as Greece as this shit hits the fan. When Greece leads the way, others will soon follow.

Doom on bitchez!

Ahmeexnal's picture

Seems like the enlightened democracies of europe still can't learn that you cant appease a nation of sociopaths.
Last time they let them invade Poland and thought that would keep the rest of the continent safe.
Now they think that letting them "invade" Greece will once again be enough to keep them satisfied.

Market Efficiency Romantic's picture

yeah, right, as an extremist, you would see it that way. As a realist, you would recognize, how Greece was set up, hey, yeah, the Goldmanites are among us and the only relevant result will be a destabilization of Europe, much in the interest of the US and the UK. It really hurts, how blindsided some people spread their BS, coloured with historical anger.

Ahmeexnal's picture

Yes, Greece was the EU and the francogerman banking mafia (with help from their US agents, GS).
Soon GS will also spring the trap on the US.
Too bad the MSM don't tell you that the EU was a Rothschild/Bilderberg plan, just like the thousand year empire that capsized just over half a century ago.
It really hurts, how blindsided some people spread their BS, coloured with historical ignorance.

Market Efficiency Romantic's picture

Re Rothschildt control and European integration, I totally agree with you, but I am missing your link from the NWO elite to Germany as a nation of sociopaths. If you look into the political and corporate in the US, the de-facto NWO controlled FED and JPM, I wonder, how you direct the responsibility at any Eu government. They joined the game, were played and now are all getting buried. So, the question is, who is exercising control institutionally, not in person.

Ahmeexnal's picture

And now for the grand move in their chess board, the powerelite have moved their puppet peon to ask for UN full membership.
Interesting how this happens just as the bank meltdown is about to blow up.
The british setup the middle east to explode with their 1948 partition and have just now lit the fuse.
Ask yourself how much money per capita the PA has received. Nowhere in earth will you find that much money being poured into a black hole. Most of that money never really made it to the PA, it was just collected by the corrupt powerelite thanks to the gullibity (and hatred for Israel) of their taxpayers.

trav7777's picture

um...the banking mafia is jewish, not German.  WTF does this mafia have to do with the invasion of poland?  Hilter was a german nationalist who was no fan of the banking mafia.

Ahmeexnal's picture

Trav, your idiocy knows no boundaries.
Some ought to carve a swastika on your fat greasy bald forehead.

trav7777's picture

why don't you come and fuckin try it you motherfucking idiot?

You bitch about the jewish rothschilds and then bitch about the german nationalist who tried to put them down.

What the fuck is the matter with you? 

Ahmeexnal's picture

You fucktard, he did not try to put them down you fool. They financed him you idiot. He was a puppet just like Franco, Lenin, Castro and many more.
He played the confetti card to a ignorant crowd.
The culprits of hyperinflation were the idiotic rulers who engaged themselves in a war financed on debt which they lost. They blamed someone else in order to keep their heads attached to their bodies you idiot!
The Roths claim to be something they are not. That too will come to light soon.
As for you and your kind, you will soon get what you deserve. IN FUCKING SPADES!

Market Efficiency Romantic's picture

know the story of him being an illegitimate grandson of Vienna's Rothschildt and a maid? Documents were quickly raided after WWII and now reside with British security services.

gmrpeabody's picture

You boys need to learn to play together. Off to your rooms!

RSloane's picture


I have four pit bulls, two rottweilers, and three pissed-off mastiffs. Come and try it!

Oh yeah? I have seven rocket launchers and six grenades. And a bag of doritos. Come get some!

ZeroMargin's picture


jeff montanye's picture

and i thought "nixon sucks dead dog dicks" (wall, new jersey, 1970) was nasty.  i do think that the palestinians get a better shake here than in the msm.  and that's a good thing.  wait ....

Duffminster's picture

I'm certain I'll top the list along with Tyler and a handful or Zero Hedge regulars and we already do.  Just write anything mentioning GATA, the FED and and manipulation and you get scored in the top 1%.   Write an article like this one, and you get scored in the top 0.01% or higher: Deflationary Depression & Default or Debt Monetization and Inflation - Gold and Silver remain Honest Money and the Fed doesn't want you to believe it.



TravsMom's picture

How did you know?  You are one sharp cookie!  Come give me some nookie!

SMG's picture

Incorrect, banking mafia is Illuminati, as are the Rothschilds.

caconhma's picture

<Hitler was a German nationalist who was no fan of the banking mafia.> The same is going for Stalin.

The second time (both WWI and WWII) German and Russians/Soviets set themselves up for a mutual destruction.

The German's geopolitical stupidity does not know any boundary.


Market Efficiency Romantic's picture

hey, I realize, much of our atandpoints are closer than it first appeared. Totally agreed on the long-standing Bilderberg agenda, but check their annual invitation list and you recognize that there is a large group of CFR people, the entire US financial elite (perferably with Rothschildt ties such as JPM and Lazard), some fucked European aristocrats and old money US and European entrepreneurs. And then, there is the group of potential recruits out of European countries. Check Steinbrueck, his now regular Bilderberg participation, his missing current political role in Germany and the yet unseen close to self-nomination to under the current circumstances next German chancellor. But these people are recruits to be executing the politics of people who do not like to appear in the public so much.

RoadKill's picture

All this racist, conspiratorialist, nutcase posting confirms what most of us already knew about the SHTF goldbug crowd. Makes me feel a lot better that all the doomsday BS you post is about equally as valid.

Go to your bunkers and eat your gold. We won't miss you.

Meanwhile the rationale people can see that this is actually more positive then negative.

Greece had to go under. Government deficits have to be slashed no matter how many commies throw rocks (because it's all they can afford). The banks have to be recapitalized. And while this all happens we need a coordinated effort to keep money from freezing up.

In the long run... This is good for the world. And in the long run, humanity will continue to prosper, thrive, invent and grow - despite those of you CHEERING for WW3. Buy great companies at cheap valuations, if they get cheaper, buy more. They will grow earnings and pay growing dividends - unlike bars of metal that only have value because our Neolithic relatives thought they were pretty. Well managed assets of all kinds go up with inflation. Not just gold.

Love this blog. But a lot of the posters are really horrible people.

xtop23's picture

 Yes by all means buy stocks !! Theyre really cheap right now !!! 

 QE is going to happen here eventually and then your stocks will rise. Great. The problem is with the associated inflation your purchasing power will remain the same or be decreased. 

 And thats if youre on the winning side of the trade.

 No thanks pal Ill stick with my doom and gloom, years and years of prior precedent that assure me that hyperinflation will occur, and that the globes governments will do the exact wrong thing to fix the current economic challenges.

dark pools of soros's picture

go read Dying of Money - you don't have much a clue about the real effects of inflation

Market Efficiency Romantic's picture

Even with the Rothschildt family having their origin in Frankfurt, with the second generation the power was distributed mainly to the French and British family clans. Today's core is definitely closer associated with the British crown and the US financial and security services than with any German group.

Ahmeexnal's picture

Yes, that is somewhat correct.
While the head might reside in the City, the arms are controlling most of the world:

TK7936's picture

BS. Even Joseph Ackermann is a Jew so your franco german mafia is not even franco german. These are poeple that already fucked the germans during the empire by collecting there gold in exchange for iou's and never returning it. Thats the bases of there wealth.

optimator's picture

No one forced the Greeks to spend, and have the lowest retirement age in the EU.  But, if Greece was raped by Goldman she was a most willing victem!

trav7777's picture

it ain't gonna matter if the EFSF buys fuckin wop debt, they can't pay it back in the first goddamned place.

Debt as an institution and the notion of "financing" things over time with growth is DEAD.  The sooner people realize this, the easier it will be for them to make rational choices.

dark pools of soros's picture

I think one of the ways to explain this is to show the population and oil production charts of the last 100 years..  growth can't happen without cheap energy or increases in efficiency..  both look to be stagnate at best

the downturn is amongst us and that will bring down production and population and lead to consolidation in both

optimator's picture

Agreed, but expansion and growth is what the past has been based on so we are entering a new era and the unknown.

snowball777's picture

People will keep fucking though.


Market Efficiency Romantic's picture

They would lose either way. A core EUR or, as being discussed by the Benelux, Germany and I believe Austria would work much more smoothly, as the economic culture and philosophy and the fiscal policy are pretty similar and don't need stupid ex-post harmonization. However, the core EU currency would quickly appreciate and the peripheral EU currency would in parallel depreciate, giving the core massive and structural problem, while the periphery would finally turn economically competitive.

Beyond that, I believe EU leaders are very aware that such a step would for long kill the idea of the United States of Europe and many would rather take up a larger burden than being responsible for such a historic kiss of death.

Dingleberry's picture

A shitload of customers is what the northern countries get. Northern countries are rich because they do not spend money and export. Southern ones are poor because they spend and import. The euro allowed the spanish, greeks, italians, et al, to feel richer than they were (and are). The germans, etc., know this. That's why there stocks are tanking. They are about to lose a ton of business. And China/US won't pick up the slack.

Aeonios's picture

I do not understand why the strong EU countries don't break away and form there own EU.  EU North?  EU ver 2.0?  EU Validus?  What is in it for them if they stay?  They will be fighting the fiscal debacuhery forever and I can not see how they will win.

You know I thought of that myself. The answer, IMHO,  is that Angela Merkel is a scum-sucking braindead ponzi boss who is too busy collecting free handouts from the ECB to bother worrying what the German people will do next year.

That and they would have to kick out France, too, and oh boy look at how many frenchies are sitting on top of the ponzi pyramid. 2/3s of the "troika" is french.

NoClueSneaker's picture

'Cause banksters apes on coke. Gov. jobs outsourced 10 yrs. + ago ...

GS lawyers write german, dutch and finnish laws.

Sudden Debt's picture

They just try to save as much as possible by buying time and finding idiots who buy their crap.


topcallingtroll's picture

If a publicly traded company in the usa had made false statements for a year, but was secretly buying protection and selling assets to unsuspecting buyers who trusted the public announcements they would face civil and possibly criminal liability.

Of course governments can lie all they want without fear. They can trade on inside information with impunity.

Government cannot be reformed. Hence it needs to be kept small enough to drown in a bathtub when we get mad at it.

Get the rope, get the guns, get the government. Hang the politicians now. Civil war is brewing and I am ready.

And fuck you FBI. why dont you investigate the real crimes and prosecute and jail enough culprits that i dont have to "conspire."

dark pools of soros's picture

Rule of Law in the USA??   No, just a few scapegoats to keep the rest playing the same crony game

NoClueSneaker's picture

FBI moved 500 agents  from white-collar crime investigations to Homeland Security ( TSA p0rn ). US of A has now 120 FBI !!!!  agents in total who pretend to investigate something.

1987 there was 1000+ of them - and they managed to put hunderts of thieves in the jail.

Milken payed more than 750 mio. $ in fines.

Today GS and Morgue steal trillions on daily basis - and the SECs help them.

( Fraudulent Bullying Ignorance ) .


.... erm, same shit here . Daisy cutting of ppl. in finance police and taxing authorities.


max2205's picture

So on Tuesday this will all be priced in? Ready, set, SQUEEZE!

AbelCatalyst's picture

Seriously, this is like watching a family of beavers try to plug up the Mississippi River.... They have no clue how impotent they are in relation to the 30+ years of debt that has been built up... A few trillion is like dust in the wind!! Go, go, go you little busy beavers! You can do it!!!

johngaltfla's picture

The problem that hasn't been answered to date:

Who is bailing out Germany?

It ain't the UK or US....

Dick Darlington's picture

That's exactly what i've been saying. EU-dictatorship is so blind in their eurofanatism that they have never even thought abt that. (Or maybe Germany actually has and they have "other plans" which are not disclosed in public). Saddle Germany with infinite responsibility of the insolvent banks and banana republics all over eurozone and you end up in a situation that there's no way left to delay the inevitable.

Greyhat's picture

Germany will call Darth Vader and his imperial storm troops to bail us out! :)

I dont understand all this anti german crap, if it were other peoples wealth  they would fight for it same as we do.

trav7777's picture

germany has a history with the primary ethnic group in the bankster clan along with the dominant ethnic group strangling media here in the USA

Ahmeexnal's picture

yes, that's what the MSM will say when TSHTF, just as they have done in the past in other countries.
sheeple are sheeple.

Greyhat's picture

Eat the rich! Its kosher! ;)