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As Italy Comes Begging For A Semi-Bailout, Germany Says Non-Semi Nein (Without Conditions)

Tyler Durden's picture


Two days ago, when noting that Italy is on collision course with technical insolvency should its bonds remain at current levels for even one more week, we wrote that "As Italy Hints Of Subordination, Did Rome Just Request A "Semi" Bailout?" Of course, yesterday's big market moving rumor was just this - namely that "supposedly" Germany had agreed to provide the underfunded EFSF and non-existent ESM as ECB SMP replacement vehicles, and implicitly to launch the bailout of not only Spain but also Italy. This turned out to be patently untrue, as we expected, despite speculation having been accepted as fact by various UK newspaper and having taken Europe by a storm of false hope, leading peripheral spreads modestly tighter (and Germany naturally wider). Of course, even if Merkel were to allow the ESM/EFSF to effectively replace the ECB secondary market bond buying, which is what this is all about, nothing will be fixed, and in fact it would lead to even more subordination and more bond selling off of positions which are not held by the ECB or ESM. But that is for the market to digest in 4-6 weeks as it appears nobody still understands how the mechanics of the flawed European rescue mechanism works. In the meantime, now that Italy has tipped its hand, it has only one option: to push full bore demanding that someone, anyone out there buy its bonds. Sadly, Germany just said nein. Again.

From Reuters:

Italy put forward a proposal at a G20 summit in Mexico on Tuesday for the euro zone's rescue funds to start buying the debt of distressed European countries, and the idea is expected to be discussed at a meeting of leaders in Rome on Friday.


The Italian proposal foresees using the EU's rescue funds, known as the EFSF and the ESM, to buy bonds of countries such as Spain and Italy in the secondary market to help bring down bond yields and lower refinancing costs.


Both facilities have the power to buy sovereign debt, but so far only the European Central Bank (ECB) has been active in purchasing the bonds of stricken euro zone countries, snapping up over 210 billion euros worth of debt since launching the programme in May 2010.


"The idea is to stabilize borrowing costs, especially for countries who are complying with their reform goals, and this should be clearly separated from the idea of a bailout," Italian Prime Minister Mario Monti told a news conference in Los Cabos at the end of a G20 meeting.

Here is a thought: perhaps the countries who are "complying with their reform goals", can actually avoid using the debt markets for once? There is a novel thought.

And just in case it is lost in translation, the idea is to bailout Italy in the absence of actual bond buyers. Because last we checked the bond market (forget idiot stocks) is still quite capable of judging for itself who is actually "complying" with non-existent targets and goals. In fact, by pushing spreads wide, the market is doing precisely that: forcing Italy to be honest about fixing its fiscal mess. Sadly Italy refuses to see logic in the eye. Actually, it spits in it.

French President Francois Hollande said no decisions had been taken on using the funds to buy debt, but that the idea was worth exploring and would be discussed at a meeting between him, Monti, German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy on Friday.


"Italy has launched an idea which is worth looking at," Hollande told reporters in response to a Reuters question.


"We are looking for ways to use the ESM for this," Hollande said. "At the moment it is just an idea, not a decision. It is part of the discussion."


Merkel has signaled in the past that the funds could be used to buy bonds, but that is unpopular in Germany and would require the agreement of other euro-zone member states.


The idea was set out by Italy's Europe minister, Enzo Moavero, in Brussels on Monday.


Moavero said the plans would also be discussed at a meeting of finance ministers in Luxembourg on June 21-22.

Note the "no discussions" had taken place to replace the SMP with ESM. But even if that did happen, and the ESM is perfectly in its right to buy Spanish debt, the only thing it would achieve is subordinate existing debtholders even more.

At least one person gets this: Credit Suisse’s Andrew Garthwaite said in a note that the reported proposal by Italian PM Monti does "little to resolve" the 3 main problems - growth, PIIGS solvency, and need for a banking union.

  • Isn’t clear if ESM / EFSF “has enough firepower to make a sustainable difference;” cites maximum lending volume of €500 billion
  • Any crisis resolution will have to have the ECB at its core

Finally, Germany has spoken, and has dashed all hopes once and for all that it is not the ultimate paymaster in Europe, superseding even the ECB. From Market News:

The German government on Wednesday reaffirmed that the European bailout funds EFSF and ESM won't be able to buy bonds of EMU member states on the secondary markets without these countries applying formally for such aid and accepting the conditions tied to it.


"Such secondary market purchases are foreseen as one of several instruments in the EFSF as well as in the future ESM," government spokesman Georg Streiter said at a regular press conference here. "They are naturally tied to conditions and there won't ever be any purchases without conditions."


Commenting on Greece, Streiter said Germany expected that the new government there will abide by the fiscal consolidation and reform program agreed with the EU, the ECB and the IMF.


Yet, finance ministry spokeswoman Marianne Kothe said at the same press conference that regarding the timetable of the consolidation and reform program "small adaptations can be made, as has been already the case before."


German Finance Minister Wolfgang Schaeuble told German weekly Die Zeit in an interview to be published Thursday that "we did not ask too much of Greece and we won't ask too much of Greece."


ECB Executive Board member Joerg Asmussen, a German national, said Monday it was too early to tell if Greece should be allowed more time to meet its goals. One must first see how the new government judges the state of the economy and the progress on reforms, he explained. Asmussen also warned that giving Greece more time meant automatically that "there will be an additional external financial need."


A senior EU official said Tuesday that Eurozone finance ministers are expected to open talks on modifying the details of Greece's second bailout program because months of political paralysis in the country have caused reforms to stall.

Well that about kills the existing rumor mill.

Now let's see what rumor that Germany has completely changed its policy of pushing the Eurozone to the brink of default, keeping the EUR lower (and its export sector humming), keeping its mercantilist trading partners on the edge of disaster and thus demanding a bailout at any condition that Germany sets (the last being most critical), can give us today...


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Wed, 06/20/2012 - 07:07 | 2542402 fonzannoon
fonzannoon's picture

Gold can't wait to get the party started today. Down 12 bucks already and silver is looking at $27. Going to be interesting.

Wed, 06/20/2012 - 07:12 | 2542411 sunnydays
sunnydays's picture

The constitutional court of Germany ruled that Merkel has taken on too much power.  The parliament comes before her in power.  Things may change pretty fast.  Merkel won't be able to commit to bailouts to other countries now.  It has to be the parliament to do that now.

Wed, 06/20/2012 - 07:29 | 2542433 slewie the pi-rat
slewie the pi-rat's picture

sine qua nein, BiCheZ!

risk0ff?  L0L!!!

Wed, 06/20/2012 - 08:18 | 2542518 OttoMBMP
OttoMBMP's picture

Ah, yes, Tyler, it is Germany (ze Krauts) who push the EU to the brink of default.

Not perhaps overspending and TBTF bailouts.

Nope , it's Germany, for the evil exporting industry, which, of course, didn't exist before the Euro was introduced. It's Germany, losing more than a trillion in ESM, EFSF and Target2. Of course.

I think we should be punished. What about a nice carpet bombing?

Wed, 06/20/2012 - 08:08 | 2542493 TrainWreck1
Wed, 06/20/2012 - 08:19 | 2542526 OttoMBMP
OttoMBMP's picture

The parlament is a bunch of corrupt puppets. No worries.

Wed, 06/20/2012 - 08:21 | 2542535 lunar
lunar's picture

@sunnydays - according with the last poll almost all the german parliamentariants (except a few very lefties) want say "yes" to the ESM, although they (should) know that will ruin their country.

Wed, 06/20/2012 - 08:22 | 2542540 Winston Churchill
Winston Churchill's picture

Constitutions are there solely for the amusement of politicians.

Laws only apply to serfs.

Wed, 06/20/2012 - 10:10 | 2543098 Freddie
Freddie's picture

Merkel won't be able to commit to bailouts to other countries now. 

Too bad she does not have a magic teleprompter and a pretend Constitution she could shred like the Kenyan.

Wed, 06/20/2012 - 07:09 | 2542406 Ghordius
Ghordius's picture

"At least one person gets this: Credit Suisse’s Andrew Garthwaite said in a note that the reported proposal by Italian PM Monti does "little to resolve" the 3 main problems - growth, PIIGS solvency, and need for a banking union."

Alas, the usual list of requests from bankers:

- growth, but please not organic, it takes too long, pump some taxpayer money into it

- solvency, which is not what their growth would help and

- banking union, the alternative to EuroBonds

Hello? All what is needed is time, but this goes against your banker's bonuses interests.

Wed, 06/20/2012 - 07:16 | 2542415 GeneMarchbanks
GeneMarchbanks's picture

Well, yeah, churn is the word you like to use I believe. Unfortunately since the that fateful day in September of '01 the Oligarchs have tried to pile a century of pillage into a decade. Hyperwarp speed ahead nevermind that the wheels have come off.

Wed, 06/20/2012 - 07:18 | 2542418 disabledvet
disabledvet's picture

Policy clarity wouldn't be bad either. Methinks "real choices are imminent" and it's better to obfuscate than to provide an actual road map to "fixing things" that simply isn't achievable. Thanks for still posting BGFB's. You and Sudden Debt are the only two that help me break through the crap of what the media wants us to believe.

Wed, 06/20/2012 - 10:13 | 2543121 Freddie
Freddie's picture

Italian PM Mario Monti is a Goldman Sachs man.   He needs to get the Mussolini treatment.

Wed, 06/20/2012 - 07:11 | 2542407 slewie the pi-rat
slewie the pi-rat's picture

The German government on Wednesday reaffirmed that the European bailout funds EFSF and ESM won't be able to buy bonds of EMU member states on the secondary markets without these countries applying formally for such aid and accepting the conditions tied to it

they are now repeating last weeks' script?  fabulous!  boo!  BOO!!!  hissszzz!

did somebody get the pages in the wrong order?

so there is a meeting friday  >--->   French President Francois Hollande said no decisions had been taken on using the funds to buy debt, but that the idea was worth exploring and would be discussed at a meeting between him, Monti, German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy on Friday.

marioEBC: where in the world are you?  L0L!!!

Wed, 06/20/2012 - 07:12 | 2542408 Gandalf6900
Gandalf6900's picture

one question...with all the time spent fucking around with finance and banking meetings, who is running these countries???

a: no one

b: a handful of monkeys

c: captain kirck

d: all of the above

Wed, 06/20/2012 - 07:12 | 2542409 Burr's 2nd Shot
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2 and 20 for Gossip Girlz Fundamental Value Offshore Ltd!

Wed, 06/20/2012 - 07:13 | 2542412 Sudden Debt
Sudden Debt's picture

If you're broke you don't get more debt.


And GDP goes down so the total amount you can loan also goes down

Wed, 06/20/2012 - 07:24 | 2542427 disabledvet
disabledvet's picture

We now know for a fact this need not be true..and if you ask Chairman Bernanke or anyone here "that's coming from easily the most withering critic of his Fed" namely me. I simply assumed a massive inflation and boy was I wrong. The question as I see it is that the Euro folks are simply not "going with the Financial Army dey gotz"...and it is formidable btw. As a card carry member of the "this is called the poor use of language guy" it is all too understandable non? Anywho again always look forward to you and The Bank Guy's posts as what is going on matters to how we do things in our surprisingly interconnected world.

Wed, 06/20/2012 - 07:14 | 2542413 firstdivision
Wed, 06/20/2012 - 07:17 | 2542416 andrewp111
andrewp111's picture

If Germany allows the EFSF / ESM to buy e600B of Italian and Spanish debt, as the UK newspapers have reported, it is a temporary kick the can move by Germany. Such a buy does not involve net monetization in the way an ECB purchase does. It preserves the value of the Euro and extends the timeline so Germany has time to print up trillions of new Reichsmarks and prepare to exit the Euro itself.  The Germans are very orderly and methodical, and they will want the Ger-exit to be done right.  Once Germany is ready and announces a surprise Euro exit over a weekend, the Euro will drop like a stone in the ocean. As Germany's external debt is still denominated in Euros, Germany will be a net winner. Greece will stay in the Euro till the end, and the Euro will become the Drachma.

Wed, 06/20/2012 - 07:19 | 2542422 Tyler Durden
Tyler Durden's picture

It does however subordinate (both implicitly and explicitly) existing peripheral bondholders, which means no more non-ESM/ECB bids for bond markets. Which is the main reason why the ECB stopped buying peripheral bonds ever since the whole Greek bailout fiasco.

Wed, 06/20/2012 - 07:26 | 2542431 disabledvet
disabledvet's picture


Wed, 06/20/2012 - 07:39 | 2542453 aleph0
aleph0's picture

Blitz'exit ... I guess.

Who can blame them ? .. those countries wanting their money I suppose.

Wed, 06/20/2012 - 08:22 | 2542538 OttoMBMP
OttoMBMP's picture

You are again - wrongly - assuming that the German government acts in the best interest of the German people. The German government acts on behalf of the NWO ideology.

Wed, 06/20/2012 - 07:19 | 2542420 phungus_mungus
phungus_mungus's picture

Seriously, does anyone in the EU honestly know what the fuck they are doing anymore?

Does anyone know which way is up, or are they hotly trying to destroy the eurozone and with it most of the global banking system?

Serially, WTF---Over!?!?!!?

Wed, 06/20/2012 - 07:28 | 2542432 disabledvet
disabledvet's picture

I'll take the town of Fusen for 200 Alex.

Wed, 06/20/2012 - 07:30 | 2542435 JackT
JackT's picture

It appears all shame has been lost. Hopefully the history books will get it recorded right.

Wed, 06/20/2012 - 07:22 | 2542424 westboundnup
westboundnup's picture

Can someone answer the question, "Who is buying Italian bonds?"

Wed, 06/20/2012 - 07:30 | 2542437 disabledvet
disabledvet's picture

"dat guy over dere" I believe.

Wed, 06/20/2012 - 07:34 | 2542442 slewie the pi-rat
slewie the pi-rat's picture

tyler tried for the spanish bonds with this, yesterday...

Here's Why Spanish Bonds Are Rallying

Wed, 06/20/2012 - 07:29 | 2542434 vmromk
vmromk's picture

Don't beg the Germans, beg Bernanke, he's just looking for any reason to fire up the HP.

FUCK YOU Bernanke.


Wed, 06/20/2012 - 07:36 | 2542444 Satan
Satan's picture

Rarely is a " semi " satisfying for any party involved.

Wed, 06/20/2012 - 07:36 | 2542445 Alejandrito
Alejandrito's picture

Germany and has said repeatedly, without assignment of tax sovereignty will not help the rest of Pigsians.

Economies like the Portuguese and Spanish are so damaged that only large counterparties someone came to their aid.

Wed, 06/20/2012 - 07:37 | 2542448 Alejandrito
Alejandrito's picture

Now the most skeptical to cede sovereignty is France:

Wed, 06/20/2012 - 08:27 | 2542555 Element
Element's picture

"... We're gonna to need a bigger thingamajig ..."

Wed, 06/20/2012 - 11:23 | 2543525 yogibear
yogibear's picture

All the PIIGS need to start printing Euros independent of the ECB. Make the Euro and Brussels the joke it is.


The PIIGS can flood the EU with their own Euros. Printing and counterfeiting are the same.

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