Here Comes Europe's Hail Mary - Presenting The "Redemption Fund"

Tyler Durden's picture

A week ago, Zero Hedge brought up the last Hail Mary available in Europe's fiscal arsenal: the Redemption Fund. Specifically we said, " There are currently three options being discussed for the Stabilittee bonds - all of which have more than short-term time horizons for any potential implementation and so we suspect, as CS mentions, that the talk of the Redemption Fund from the German Council of Economic Experts will grow louder as an interim step" and quoting Credit Suisse, " One proposal that might be able to co-exist with the Treaties as they are is the recommendation of the German Council of Economic Experts, pooling sovereign debt in a Redemption Fund as we discussed briefly last week. We are quite surprised that the idea does not seem to have generated more traction in the press since it is one of few proposals that actually provides a means for reducing debt (rather than moving it around the euro area) and is aimed not to fall foul of the German Constitution. Something based around this idea might be a contender for a precursor to permanent Eurobonds, buying time while the Treaties are changed." Sure enough here is Reuters showing that it only took Germany one week to catch up to what our readers already knew, from Reuters: "Germany will propose setting up special national funds for euro zone sovereign debt that is over 60 percent of gross domestic product to help build market confidence, the country's finance minister said on Thursday. Wolfgang Schaeuble told reporters that Germany would make the proposal at a European Union summit next week. The funds should be supported by public revenues and dismantled within 20 years, he said." In other words even Europe now admits that the EFSF as even as stop gap measure to fill the void before the ECB acquiesces to print, is dead, and is looking at the last measure available to fix the fundamental problem at the heart of the Eurozone (yesterday's liquidity band aid is just that) which is the rolling of untenable amounts of leverage. Unfortunately, the core provision of Schauble's redemption fund variation which is that the fund is national, "which would get around German concerns about the "communitarization" of debt between European states" means that the idea is hardly unlikely to pick up as it relies on already insolvent countries to fund it. If this is indeed the final backstop to be presented at the European Summit, it may be time to turn bearish on Europe all over again, today's surging sovereign bond prices notwithstanding.

And here is Morgan Stanley with some more perspectives:

Debt redemption pact and safe bonds


As a specific example of the partial issuance approach, the German Council of Economic Experts (GCEE) presented in their Annual Report 2011/1224 a proposal for safe bonds that is a part of a euro-area wide debt reduction strategy aimed at bringing the level of government indebtedness back below the 60% ceiling as put in the Maastricht Treaty.


One of the pillars of the strategy is a so-called debt redemption fund. The redemption fund would pool government debt exceeding 60% of individual countries' GDP of euro area Member States. It would be based on joint liability. Each participating country would, under a defined a consolidation path, be obliged to autonomously redeem the transferred debt over a period of 20 to 25 years. The joint liability during the repayment phase means that safe bonds would thereby be created. In practice, the redemption fund would issue safe bonds and the proceeds would be used by participating countries to cover their pre-agreed current financing needs for the redemption of outstanding bonds and new borrowing. Therefore, the debt transfer would occur gradually over around five years. Member States with debt above 60% of GDP would therefore not have to seek financing on the market during the roll-in phase as long as the pre-agreed debt reduction path was adhered to. After the roll-in phase, the outstanding debt levels in the euro area would comprise: (i) national debt up to 60% of a country's GDP, and (ii) debt transferred to the redemption fund amounting to the remainder of the debt at the time of transfer. Open questions remain, for example on the fund's risk, and the impact on the de facto seniority from collateralisation of the fund's bonds.


The GCEE debt redemption pact combines (temporary) common issuance and strict rules on fiscal adjustment. They do not constitute a proposal for Stability Bonds in the meaning of this Green Paper, in the sense that common issuance would be temporary and used only for Member States with public debt ratios above 60% of GDP. Instead, the GCEE proposes to introduce a temporary financing tool that would give all euro-area Member States time, and financial breathing space, to bring their debt below 60% of GDP. Once this goal is reached the fund and safe bonds will be automatically liquidated. Therefore, safe bonds are a crisis tool rather than a way of permanent integration of the euro-area government bond markets. Even though temporary, the debt redemption pact could contribute to the resolution of the current debt overhang problem.

Comment viewing options

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

SP back to 770-850 ...end of the farce

Eurostoxx 1.500-1.650

Oil 55


LawsofPhysics's picture

"SP back to 770-850 ...end of the farce

Eurostoxx 1.500-1.650

Oil 550


fixed it for you.

SheepDog-One's picture

Its hard to even imagine what things would actually be like with oil at $550, unless youre into the Mad Max movies.

LawsofPhysics's picture

I see no dollar sign on my comment.  What you should be asking yourself is "550 what?"  See my comments below as well.

AngryGerman's picture

"SP back to 7770-7850 ...end of the farce

Eurostoxx 4.500-4.650

Oil 55



fixed it for you (according to ecb)

The Big Ching-aso's picture



Ya, meanwhile behind the scenes Germany is printing Deutsche Marks up the heinie.    

Carlyle Groupie's picture

DBA is headed back down to a 23.5 - 24 handle. And Iran is just getting their internal nuke capacity managed by the foreign consultants.

I don't see an inflation argument in food or energy.

LawsofPhysics's picture

Why not?  Are all the people/corporations that require the energy to operate going away?  Is everyone's purchasing power increasing?  Is the energy and capital cost to recover energy or develop and deliver new technology getting cheaper?  If your answer is no to any one of these then there is only one outcome.  Just like in Russia after the collapse of communism, the "official price" won't fucking matter, it will be simply whether or not it is actually available.  So in "academic" terms (or bullshit terms) you may be right.

Dr. Engali's picture

You're too generous on the S&P. I'm thinking S&P 450

WhiteNight123129's picture

Nominal S&P earnings at 180 USD.

LawsofPhysics's picture

Another black hole for liquidity, fucking brilliant.  Will anyone address the solvency issue, ever?

Whoa Dammit's picture

Solvency will not be addressed because the banksters and their pols would have to admit that they are caught in an inescapable greed trap of their own making.

prains's picture

PIMCO basically admitted this on Hardtalk today

mess nonster's picture

No-one will address the solvency issue, for potent psychological reasons, and even more potent long-term strategic reasons.

On the psychological level, a friend of mine just said, "I'm sick and tired of hearing about the End of the World and Fionancial Collapse! Things are going to improve, OK??!!


My guess is that, aside form ZH'ers, most people desperately believe things will get better, because, well, things have always gotten better. i think this includes most economists, most government economic architects (Central Bankers, etc).

But just as there are a few, far outside the realms of power who can see the truth, there is an even smaller coterie of people at the center of power who understand the unsustainability of the current system, and are working it to their advantage.

These men are NOT Jews. The Jewish tragedy is that the Jews NEED the current system (which they engineered), in order to obtain their objective, which strangely enough, is nothing more than a tiny, rocky, infertile outcropping of limestone in the Levant. You go figure. For the Jews, world domination is only a means to an end, which betrays their romanticism and naivete, and almost makes them endearing, in a pitiful sort of manner.

The Not-Jews see that the destruction of the current system is their path towards world domination, for the sake of world domination, because they like power, because they wish to sit upon the throne of God as if they were God. Their insanity is of a darker nature entirely.

The nut is economic, but in the sense of economy as the path to power. The system will be driven to destruction, by design. The Jews, who built the system, have no choice but to ride the locomotive over the precipice. For them, to get off is destruction now, and to stay on is destruction later, so they stay on, hoping that a way out might be found in time. Besides, they think, they always have the Sampson option, which no-one will allow them to use.

The Not-Jews are certain the Jews will be forced into the Sampson option, which will be the self-immolation of the Jews and the end of them, by their own hand. There will be lots of collateral damage, but that also benefits the plans of the Not-Jews, as it destroys or seriously weakens any residual oppostion to their plans for domination.

To sum up, the endless dithering in Europe is strategic, and designed to bring the global system to an utter train-wreck.

It is a perfect check-mate. If the economic structure implodes beneath its own weight, human misery will demand a re-set. Think "Holy Roman Global Empire" as the re-set. If the Jews see that by an economic collapse, they are about to lose their chance to own that rocky outcropping, they will attack to get it, before it is too late. This will bring about an acceleration of the economic collapse, and the ascendancy of the Not-Jews.  Either way, the ascendancy of the Not-Jews is assured.

Who are the Not-Jews? A hint: Think of a cerberus, with the heads of Albert Pike, Otto Bismarck, and Guiseppe Mazzini, wearing a coarse black woolen cossack, wearing a triple crown (Which head? Pick one) and holding, in his right hand a scepter, and in his left a machine gun.

The Big Ching-aso's picture



Take both hands.     Apply firm pressure between them.    Yank downward in one firm thrust.   You will hear a loud 'Pop'.    

Don't be alarmed.    This is just your head being released from your ass. 

WhiteNight123129's picture

It will get better.... in 10 years.

Ahmeexnal's picture

Resurrection Fund!

lolmao500's picture

So the rich (relatively) euro countries with fiscal dicipline pay for the poor and hooked on spending ones? Yeah I'm sure people are gonna like that... NOT.

Are you kidding's picture

But that's the way it is...productive people pay the way for unproductive people.  It's what we do here already.

jay28elle's picture

What the hell.  I'm game.

Hondo's picture

This will never work...I mean who are they trying to kid...Funded with nothing more than printed money...and does not address that every day more and more debt would be put into the fund as all country's are running fiscal deficits...I would continue to stay clear of any Euro Sovereign debt as this is nothing more than smoke and mirrors again....they have absolutely no way to pay it down no matter where they stuff it.

Ghordius's picture

you are right, buy UK, US, Japanese, Brazilian, Russian and of course South American's sovereign bonds, instead...

wait, pay it down? what? you mean completely? are you kidding? when was this done, like, ever?

SheepDog-One's picture

Theyre trying to fill a hole with printed up money...the problem is the more they dump in, the deeper the hole gets.

i-dog's picture

What they really need to do is pool some brain cells between them and cobble together one functional brain to work with!

Hugh_Jorgan's picture

I think you're forgetting that there is solid evidence to suggest that this is all intentional. No one is this stupid.

i-dog's picture

+1. I've not forgotten.

Hopefully, my comment and your response might wake a few others to this reality.

Ghordius's picture

Long live the EFSF! Oh, wait, it's dead...

Long live the Redemption Fund! Long live the Redemption Fund!


Wait a minute! This might even work! Over 60%, coupled with some fiscal restraint, balanced budgets and a clear treaty... Shit, are they serious this time?

Oh, the horror of having to change my mind.... the horror.... all my plans...

Mactheknife's picture

>coupled with some fiscal restraint, balanced budgets and a clear treaty...

Perhaps you'd be interested in some really nice beach-front property in AZ?

Ghordius's picture

I have already a comment on this further down, but let me explain one little thing about EU politicians (ex-UK). They love to spend, ok.

But they don't mind that much to spend less or even make budget surpluses if this is connected to a treaty that gives them other advantages.

If this would not be so, there would be no EU and no EZ.

I know, I know, "Austerity Bitchez" and "Loss of sovereignty" and "country XY is squeezed to death by..." and all this. But they would do it.

Caveat: Greece (and perhaps Ireland) might balk and leave - which makes all the lucky fellows betting on a "breakup" of the EZ rejoice...

reload's picture

The `ex UK` part gives the Uk credit for prudence where NONE IS DUE. The current Tory/LibDem government are trying to reign in spending - just so long as nobody gets too upset. They have already caved in on several key election goals. Meanwhile they are printing like fiends to save their banker friends and the treasury from `liquidity issues`. Meanwhile the central bank shrugs without a care in the world as its inflation target is overshot by 100% for three years running.

The previous Labour Government ran the country into massive debt with spending projects for crony`s and massive increase in public sector headcount. Needless to say there was fuck all to show for this except a bigger millstone around the private sector which had to struggle with layers of pointless extra red tape and regulation - The only funny thing is that while Brown gets the blame for selling a chunk of UK gold reserves at rock bottom prices, Blair gets the credit from the main beneficiary with a lifelong multi million a year `consultancy` from good old JPM.

UK politicians are no different from politicians everywhere - they will spend other peoples money until it is all gone.

kito's picture

I'm just shocked they are calling for a plan that tyler feels could actually theory

Ghordius's picture

well, they planned to plan to find a plan to...

seems they are getting somewhere, for once

German Proverb: "Auch ein blindes Huhn findet mal ein Korn" - Even a blind chicken finds a seed, from time to time...

Ropingdown's picture

Merkel is doing an excellent job and actually showing the backbone we haven't seen out of the EU in some time.  She and her staff are staying on message: "We will not pay for the debt of others, but we will try and help establish a new regimen of fiscal oversight.  It is for the debtors to show effective action, not for them to deliver mere promises."   She was masterful at buying time through ambivalent vagueness from July through November in order to consolidate her position (preparations).  Her position yesterday and today will stick.  It is where Germany is drawing the line.  I have gained an education in the peripheral countries' ethos as I see them gang up on the north, demanding money now for uncertain actions later.  They won't or can't collect taxes in their own jurisdictions, so they scream "give us your taxes!"  Nauseating.

hugovanderbubble's picture

" Central Banks are unsolvent" period....

ECB is not AAA

the FEd is not AAA is C-

SNB is a fraud

BOJ toasted


SheepDog-One's picture

Every play now is a hail mary.

YBNguy's picture

Better hope its Tebow taking these snaps - with the whole God thing and all....

The Big Ching-aso's picture



In the states, we call those plays now Hail Barrys.

vote_libertarian_party's picture

Say it....SAY IT!!!!


Somebody has to eat the losses eventually.

Captain Kink's picture

Extend and pretend.  Whose balance sheet do they land on?  or is this another new balance sheet?  The ponzi lives. 


Sudden Debt's picture

If my country would decide to give every citizen 20.000 euro and add all that to it's national debt...

than go knocking to those morons door.... and ask for a debt cut, free money and all the beer in the world...

which country would be the smartest? The one who lends out the money or the country that receives it and gives it to it's people? Giving can also happen by creating excesive amounts of government jobs with excesive wages for example.... 



Ghordius's picture

SD, your country would never do it. Your country would give every citizen 20.000 beers.

you are so bloody lucky with your government anyway

SheepDog-One's picture

I the whole rest of the world is going into austerity and bankruptcy, but 'the US would never do it'. No, its coming here next.

No you wrong, US will be the HARDEST hit, but the last hit...everyone else is disarmed and theyre just not sure how to go about taking it all away yet.

Ghordius's picture

hemm... I was making a joke about Belgium (SD is Belgian) giving free beer instead of free money...

...and being lucky with having no government since quite a time now... luckily they have a King! It helps to have a King!

I don't want to contradict you and actually I'm mostly of your opinion, with a few little caveats. you are scary when you are angry, you know?

slaughterer's picture

SD-1: which do you think goes first?  France or the USA?  

Sudden Debt's picture