As Lagarde Throws Germany And European Banks Under The Bus, Did She Just Truncate Her IMF Career?

Tyler Durden's picture

This year's biggest winner from the botched DSK affair has been France's Christine Lagarde, who despite the dropping of all charges against the former head, is now in charge of the IMF. We admit that the ascension of Lagarde to the throne of the world's most irrelevant global bailout organization (what the IMF "does" is of not importance: the only thing that matters is who Beijing, and Chinabot, feels like rescuing today) happened even though we previously predicted that Germany would be very much against it. Well, Germany let it slide, and endorsed Lagarde. That may soon change though, after the former finance minister essentially threw the entire European (read French, Swiss and German whose assets as a % of host GDP are ridiculous... yes, a technical term) financial system under the bus at Jackson Hole, a day after Bernanke said to wait until September 20 for QE3 clarity. Per Bloomberg: "Bolstering banks’ balance sheets “is key to cutting the chains of contagion,” Lagarde said today in the text of remarks at the Federal Reserve’s annual forum in Jackson Hole, Wyoming. Without an “urgent” recapitalization, “we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis." Lagarde, a former French finance minister who took the helm at the Washington-based IMF in July, said recapitalization should be “substantial.” Banks should look for funds in the markets first and seek public funds if necessary. One way to provide capital could be through the European bailout fund, she said." And now, one can see why Germany is fuming: not only will Germany soon have no choice but to fund the EFSF's sovereign bailout ration all on its own, which as we, and other have speculated, could be as large as €3.5 trillion (or about $5 trillion), but it will be Germany's duty to also fund the rescue of all banks on a parallel track. What is the additional tally? Why at least $230 billion in Europe alone in the next several months. Then again, when you get to $5 trillion, what's a few hundred billions between friends?

Reuters explains:

Banks will struggle to refinance the upcoming mountain of government-guaranteed debt that is due to mature in the next two years unless the primary market fully thaws in the coming weeks, according to bankers and investors.


Banks had planned to aggressively use the autumn period to get ahead of large refinancing requirements in 2012.


Thomson Reuters data show that the USD230bn equivalent of European bank government-guaranteed debt will mature in 2012 and US banks will have more than USD122bn maturing.


Governments started guaranteeing banks' debt issuance in September 2008 as capital and money markets froze after the failure of Lehman Brothers on September 15th.


Most of the guarantees had a three-year maturity, although Spain and France allowed banks to issue up to five years.


"The wall of upcoming maturing government-guaranteed debt is a concern, especially if the current market freeze goes on for much longer and spills over into 2012," said Martin Lukac, financials credit analyst at Principal Global Investors.


"If you look back, the government-guaranteed schemes were all established around the same time and were limited in terms of maturities which means that a lot of them are coming up at the same time, making the banks' maturity profile very frontloaded," said Lukac.


According to Thomson Reuters data, a mere USD7bn equivalent of senior was raised by European banks in July while the tally for August is even lower at just over USD1bn equivalent. This compounded poor volumes in June when USD17.4bn was sold, well below May' s figure at USD41.2bn.

All of the above is another way of saying what Zero Hedge pointed out last week: namely that Europe is now entirely shut out from capital markets, as confirmed by the following Morgan Stanley chart.

And then just to make sure her message was heard loud and clear, Lagarde added:

Lagarde also warned that the world economy is in a “dangerous new phase” and called for measures that will ensure a sustainable fiscal path in the medium term while boosting growth now. Policy makers in advanced economies are under pressure to reduce their public debt just as their economies show renewed signs of economic weakness and unemployment fails to decline.

So just when Europe thought it had the collapsing situation under control (although not if one looks at the DAX, which has tumbled over 20% in August alone), here comes the IMF and tells the country it is its duty to bail out more, more, more. Then again, anyone who read our analysis back in late July about the transition of risk from the periphery to the core, could have seen the German rout (in both stocks and CDS) coming from a mile away. As a reminder: "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?" Which is why we believe odds that Miss Lagarde will be met with a metaphorically comparable "Sofitel maid" incident as the former IMF head, just went up by a lot to quite a lot.

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Azannoth's picture

Now who had the 'bright' idea of putting a french woman in charge of anything ?

Fish Gone Bad's picture

The french government has its issues, but the french people are okay.  They did give us the guillotine and all those cool pastries.

spiral_eyes's picture

time for america to liberate france from those evil frenchies who don't believe that the solution to everything is printing massive amounts of currency and giving them to goldman sachs? 

DogSlime's picture

Erm... you're either being ironic or you haven't noticed what's been happening in the USA over the past couple of years...  Hopefully you're being ironic :)

AldousHuxley's picture

Time for french to dust off the guillotine and bring it out or turn the Effel tower in to a massive guillotine.




unununium's picture



eureka's picture

CL is just a pretty girl who takes orders from ... - well, let's say her local "big boys". 

Check her clueless responses to questions re the 08/09 financial collapse in the documentary "Inside Job" - her response: "I don't know".

falak pema's picture

Remember she is a lawyer by training and blows with the wind and "you never know" which way the wind will blow!

Good survival instinct. But now she is in the hot seat and can't pass the buck. So she talks like the globalist clique that employs her and calls the shots.

I don't think they have the solution but I don't think that current market schizophrenia is something that will provide a better result, as its taking us faster down to the bottom. 

We're damned if we do stay "global"; we're damned if we do go "reductionist and local". Civilization in crisis...can we avoid WW3 is the real issue now.

Albertarocks's picture

Not to mention some pretty fine pasties.  Always considered them as a major league visual nuisance though.

IMA5U's picture

because they work better on their knees

Ras Bongo's picture

She was trained to do God's work u idiot!

props2009's picture

BofA, GS and MS reports on Apple post Steve


Full reports:

sIewie the pi-rat's picture

props2009 TROLL!!!!!!!!!!

who uz WorK 4 props??????????????? GS yes we hate GS  and you should LEAVE NOW


septicshock's picture

SIewie, you havent even been a member for a week. Stop the bold face and exclamations.

septicshock's picture

No worries bro. No one likes a troll, call em out when you see em. Zerohedge is a good site. Sometimes the passion becomes overwhelming and people think everyone that doesnt conform to the view is a troll. Tyler is working hard to bring us the news without the usual paid media spin... Of course, he has own bias... But a bias shared by us all here mostly.

Id fight Gandhi's picture

But he's good at sniffing out trolls.

Really I am sick of these READ MY BLOG posters.

Newsboy's picture

Panic now Christine!

Go for the Eurobond fight!

Piss on the German constitution; they're pigs, anyway!

(Trashers oblivious to sarcasm are in evidence again)

Spitzer's picture

The ECB doesn't care what the IMF demands. The IMF has no power over the ECB.

They are separate entities. If the IMF thinks that the problems in the EU will bring down the dollar system then she can bail out Europe herself.

Snidley Whipsnae's picture

Christine should go to her copy machine and print up however many SDRs she needs to bail out the entire flocking world!

SDRs, what a joke... Just more god damned paper...

Germany... Time to tell the PIIGS, the Fed, and Christine to take a flying flock at themselves... Go your own way...

destiny's picture

They may not be officially linked...but we all have the same few masters so do these two toilet paper shit holes..

bugs_'s picture


Meet the "dangerous new phase"!

Same as the "dangerous old phase"!


sIewie the pi-rat's picture

 bugs_  this is a classy hood.

So stop with the UPPERCASE and exclamations.


Problem Is's picture

HaHa... Touche...
Nice touch of do unto others as others have done unto you, new guy...

You won your first fight at fight club...

septicshock's picture

It Is becoming Clear that world governments have no plan for peak oil and are now just trying to hold the system together as long as possible... The hope and prayer chance that some miraculous new energy source can be found to be exploited.

Long gold, cause I would rather carry a few pounds of gold than haul a carload of silver or a shipload of fiat paper.

Long beans, bullets, and barbwire... Cause this shit is on like donkey kong.

Oh, and tyler... Thanks for the good work. I have unfortunately not been able to capitalize on them well. Your short term predictions are about fifty/fifty.... But your long term predictions are 100%. This is the single best site on the web for economic news... Ofcourse, the additional commentary is the icing on the cake.

IMA5U's picture

the hardest thing about the market is not knowing the facts.  it's timing the trade correctly

septicshock's picture

Whats the saying imasu? "What does the other guy know that i don't?"

oldman's picture

Hey Septic,

Not-to-worry about peal oil nor peak anything----the imf is saying that peak capital is the real problem(read crowding out of the capital markets everyone else except the US of A). It seems that this thing is much worse than anyone imagines---even the doomers are too light in their prognosis----the future is with us.

Gotta wipe the slate clean---maybe everybody loses----'no loss-no gain' is all we need to remember

This oldman has no idea, but it certainly is becoming interesting        om

Nate H's picture

"peak capital is the real problem"


define capital

septicshock's picture

Chanting does help my sanity. :)

destiny's picture

@ septicshock

You actually can have FREE and Unlimited energy...only ain't too good for the buck business, that would be too easy and it ain't the same chess board ! 

PulauHantu29's picture

The King is dead. ....Long live the Queen!


Looks like someone must print a whole lot a whole lot sooner then expected.

Mister Ponzi's picture

The Sofitel maid may be a liftboy in this case...


The graph, however, is not up-to-date. Last week we had at least two covered bond issuances by European banks, one of them was UniCredit. Doesn't really change the big picture though.

Dick Darlington's picture

On the menu very soon: massive political crisis in eurozone. That will mark the rapid beginning of disintegration. You can already feel the tension between the countries, politics (blaming others) through national newspapers instead of actually having a real conversation etc etc. In the end Germany will take care of itself and leave the insolvent southern europe and France crying after the tit of german taxpayer.

sqz's picture

Spot on. The market will force the fiscal union minimum requirement with any half measures (e.g. cdo funds and untested "guarantees") just acting as bait to the modern equivalent of gov. bond vigilantes, compounded with increasing distrust of central banks, politicians in rigid democractic systems and therefore the value of fiat currencies.

I think further Eurozone political union with a minimum of fiscal union will be an incredibly hard sell. The natives will gradually cotton on to "fiscal" as a bad word: as long as no one needed to care about how the Euro is funded and it was just a shiny new source of money, no one cared. It's a whole different ball game when it means giving up control of spending on jobs, pensions, access to credit, housing, benefits, medical care - basically everything REAL. Iceland, yes ICEland, [which few in the market or even ZH seem to comment on/realise] is the prime example of what happens when the population wakes up and smells the coffee.

The only question is how quickly this all plays out. Central bankers seem to have realised this is inevitable and are simply trying to delay as long as possible, hoping that the economic reality on the ground gives them any kind of policy breathing room. Good luck on that front! Even the Emerging Markets cannot work miracles in the "short" term, with incomplete markets and structural issues, and all the main players in the West are dead in the water from debt overhang with almost no monetary (or fiscal) policy bullets left.

drider's picture

The suggestion of embedding fiscal policy requirements and deficits limitations in the european countries constitutions, is merely a defensive strategy put forward by Merkel and Sarkozy. Since they realize that upcomming elections in various european countries will result in majorities that will press for the redistribution of wealth heisted by the banks back to common people, they try to put up a scheme that will prevent just that.

Ofcourse dictated deficits cuts means that the recession will grow bigger and the only way to meet the deficits limitations will be to tax the rich more heavily (hint: Buffet)

destiny's picture

oh no it won't be a crisis, DSK is back ! hahaha

pain_and_soros's picture

So Germany needs to backstop euro countries (& banks) that haven't been able to control spending & deficits & leverage & risks...all so that these countries & banks can continue doing what they did to get themselves into this trouble in the first place???

And if Germany doesn't acquiesce to such ridiculous demands, they'll be shunned by the rest of europe and seen once again as the bad guys who caused europe to implode...

I think the end game has already been disclosed - since the PIGS can't discipline & control themselves, Germany will make further bailouts conditional - the PIGS agree to provide collateral that will enforce discipline on them - namely gold.

Simple solution - we'll lend you paper, but to ensure it doesn't go into a black hole again & that you don't come back later saying you can't pay it back & need more, we'll take gold as collateral. If you don't like it, go wallow in the mud some more with your corrupt political leaders & see if that makes you better off...

Confused's picture


And if Germany doesn't acquiesce to such ridiculous demands, they'll be shunned by the rest of europe and seen once again as the bad guys who caused europe to implode...

Looks like its stacking up this way. The Germans will constantly be the scapegoat. 


SovietCong's picture

What many don't realize is that the public opinion in Germany is strongly divided on this. People don't understand how Eurobonds should work, and they don't understand because they are being intentionally misguided by the banking lobby. Even the influential Handelsblatt notoriously lies in the matter (think what CNBC would have to say when given the mandate by Junckers and Trichet and you'd have the picture).

Interestingly, some right-wing media, like the conservative FAZ, point out that the very name "Eurobonds" is a PR spin. The word is foreign to the German populace used to the German word "Anleihen", the term an average German understands and clearly does not like, particularly when he hears it used together with something suggesting his being jointly liable with Greeks et al. But the "bond" has a nice ring to it: in German, it sounds like "Bund" (association, union) or "Bonitat" (good faith). Moreover, Germans are used to the idea of joint issuing of some "European bonds", because that is how German states issue their "munis" for better marketability.

Generally, people are not informed that Eurobonds would result in backstopping everyone else. The whole public debate is about how much extra German taxpayers would pay in their public debt service relative to the Bunds and whether this burden is overweighted by the benefit of rescuing poorer countries from bankruptcy. Another issue is moral hazard and ensuring joint fiscal austerity, an issue close to every German heart. But nobody, repeat: *nobody*: tells the people the truth - either the Germans backstop the rest, France included, or the Eurozone implodes. So the French are trying to sway the public by creating the impression that the Eurobonds are a forgone question and the only thing on the table is how to structure the issuance. This is what, IMO, Lagarde is doing with her statement.

oldman's picture

The germans who I know are hip to the game-----bad music, but not dumb.

destiny's picture

Swaying the public and creating impressions is a French specialty, this is called "défoncer des portes ouvertes" (bursting open already opened doors..).  The French are sick and tired of these clowns.

pain_and_soros's picture

I suspect the division you are referring to is between the ruling elite (including the banksters), who overestimate their understanding & abilities and the German people, whose understading of the situation is being underestimated by those same elite.

I think the elite are much more committed to the eurozone, since they would reap most of the benefits and incur little of the costs of the solutions being tossed around publicly, which will be left for German taxpayers to pick up. 

I do think typical Germans generally support a eurozone, but not at any cost - they will want to see a proportionate burden being born by those being bailed out & they will also want to ensure that the bailout includes specific measures to ensure this situation won't be allowed to be repeated.  Anything short of this will mean the political end of whichever German politician(s) attempt to ram thru a suboptimal solution.

Someone mentioned that 1 in 3 Germans is seriously considering buying gold - most are aware of their Weimar history and foresee what the end result of mindless Euro printing will be, 

That is why I think von der Leyen's suggestion that gold be used as collateral is so signficant - it signals that some politicians are hearing what the electorate are saying & "get it"...and unless those in positions of authority safeguard german taxpayer interests, they will earn the wrath of the electorate.

how to trade armageddon's picture

And the first capital injection is in ...

From those charitable Qataris ...

Putting 500m euros into Alpha bank ...

To fund its merger with EFG Eurobank.

Kind of like a wedding between two terminal cancer patients.

drider's picture

Why did the Quataris blessed this wedding? What is in for them?

how to trade armageddon's picture

They have a big investment in Alpha that they're trying to bail out. I guess the Greek government used its leverage, saying we won't support Alpha (with Germany's money) unless you kick in more and take this Eurobank dog.

drider's picture

Thank you. Increasing their position in Alpha is making sense in terms of protecting their investement. I also guess that the merger with Eurobank will help them lower their overall operating costs. We will known the details on Monday