Revised EFSF Draft Shows Italy, Spain Responsible For One Third Of European Bailout Funding

Tyler Durden's picture

Indicating just what a banana continent Europe has become, we present the latest, December version of the EFSF term sheet, where we want to emphasize just two things. First, as the slide below shows, even with Italian and Spanish bond yields blowing out beyond stratospheric levels, and is now glaringly obvious that Spain and Italy will be first in line for the next bailout which may come as soon as a week from today (thank you Australia), the EFSF still claims that Italy and France will be responsible to fund capital into the EFSF. How much capital? €232 billion to be specific. Which just so happens, is just under one third of the total amount that has been "guaranteed" by EFSF commitments (with insolvent Greece, Ireland and Portugal obviously stepped out). Let us repeat: One Third of the European bailout firepower resides with the insolvent Italy and Spain. We also get the following: "In case a country steps out, contribution keys would be readjusted among remaining guarantors and the guarantee committee amount would decrease accordingly." In other words, as we said back on July 21, when France is the last country to be stopped out of the contribution quota, it will be all up to Germany, or else. And second, and very near and dear to the recently popular topic of rehypothecation, we find that "Once purchased, EFSF could use for repos with commercial banks to support EFSF?s liquidity management." In other words, the bonds received to bailout the broke countries, can then be recycled with the ECB all over again (and potentially infinitely with no haircuts assuming Europe funnels everything through some London-based HoldCo), doubling down the capital burden on the ECB's already meaningless 5 billion capital tranche, then potentially re-repoed, and so on. And there are those who complain that Europe "does not print."

The farce:

And the full presentation (link):


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CClarity's picture

Stuck in Fantasyland at EuroDisney.  Didn't that go bankrupt?

phungus_mungus's picture

The size of the crack rock these Euro-idiots are smoking must be ginormous! 

redpill's picture

Well it's not a bad deal from Italy & Spain's perspective since they know they are the ones that will need it soon, and between the two of them they'll bleed the whole EFSF, so really they are making a 200% return!


youLilQuantFuker's picture

Half of the game is desensitization. You can't have all the shorties pile on at once or the game is up in short order.

A little here, a little there. Up and down we go. Risk on one day and risk off the very next fucking day?

It's part of the game now.

Until one day (when you have lost your edge, fully desensitized) the whole thing comes crashing down on a Sunday night and you cannot catch a bid because the exchange is fucking closed!

So you wait till Monday (taking your losses overnight) and you cannot log into your software based trading system. You call them in a panic and you cannot get a live fucking person on the phone even after 75 calls to the 888 number.

Now things have gotten really bad and it's limit down. You're locked out.

Finally you get through and place you market order but the day is over. You pray that tomorrow will allow you to liquidate but it does not because the circuit beakers are tripped at the open.

You finally learn about the sell-side Algo predators who are tripping breakers from a story on Zerohedge.

The casino took it all again.

redpill's picture

Meanwhile I'm sipping cognac and counting 1oz Eagles

StychoKiller's picture

To quote some horror movie:  "The call is coming from inside the house -- GET OUT!"

sampo's picture

Like trying to sell a burning house 1/3 gone and still burning. In the middle of housing crisis.

Cheesy Bastard's picture

Look, I'll reduce the price by 30%.  A little new paint, maybe a touch up here or there...

blu's picture

The wife is going to want new carpets though. Throw that in and I think I can bring her around.

EDIT: I say that in jest, but in fact some years ago my wife and I were in the market and found an ad for a 2 bed 1 bath fixer-upper. We drove out there and it was a literally burned down house with no roof and nearly no walls with only 2 bedrooms and 1 bath left of the structure. We laughed our asses off -- but I bet someone bought it with those terms. The market was that hot at the time.

Cheesy Bastard's picture

As long as she likes the color "charcoal" I think we can work something out.  I'll throw in the skylight free.

blu's picture

Okay it's a deal. Now will you take these 200x leveraged re-re-rehypothecated Italian bonds backed by MFGlobal GLD paper as full payment? Jamie sez they're solid.

Cheesy Bastard's picture

Ok, but only because they are AAA rated.

Manthong's picture

I tend to look at things more from the "glass half full" perspective.. 

This implies that a full two thirds of nothing is left for all the rest.

WestVillageIdiot's picture

"This handyman's special is looking for a special owner that loves to be a do-it-yourselfer.  This is the perfect home for somebody looking for a home to grow with and love." 

The EFSF just needs to hire some real estate agents to ply their bullshit trade and convince somebody that this piece of shit is not really a house of cards. 

Mactheknife's picture

And the hits just keep on coming...

In other words, Greece has broken down under the weight of its statism and bureaucracy. “17,000 laws, decrees and edicts” merely for 'regulating competencies' within the ministries? Not even Brussels can hold a candle to that.

Naturally this vast bureaucratic labyrinth is an excellent breeding ground for corruption on a grand scale. One striking example was the discovery that a state-owned hospital in Athens had 45 gardeners on its payroll, but actually had no garden. The state-owned railway system has become like a black hole that attracts and destroys money at an astonishing rate. It was once calculated that if the government were to simply shut down the railway and instead pay the taxi fares of every single train commuter, it would actually save money.

disabledvet's picture

here...let me lend you my garden hose. sure they cut off my water a few weeks back but it still goes drip, drip, drip!

Piranhanoia's picture

Look dear,  there goes that third bedroom we needed.

jcaz's picture

LOL-  that's not printing, that's Xeroxing!


WestVillageIdiot's picture

They are cloning clusterfucks.  Just look at how succesfful they have been.  Their creations can now be seen all across the globe. 

Meanwhile the price of gold goes down.  At what point is everybody loading back up on physical?  We know Bernank won't be buying.  He will probably be too busy playing Dungeons 'n Dragons. 

disabledvet's picture

yeah, "Idjits with digits" is more like it.  there is no money.  that's the lesson.  this is going to be the greatest deflation ever witnessed in human history.  the 1870 one last over a generation.

slewie the pi-rat's picture

of course!

it is a ponzi, ya know!

tahoebumsmith's picture

One Third of the European bailout firepower resides with the insolvent Italy and Spain?


WestVillageIdiot's picture

Doesn't eveybody track down their deadbeat brother-in-law when they need a loan?  Just tell him you are good for it and he will hand you over his maxed out credit card.  Oops. 

Banksters's picture

War = Force Majeur and the cessation of contractual obligations.  Then the great fiat reset.   

Don't get scared out of your hard assets, folks.    And get some extra food!




disabledvet's picture

can't be done. this is a currency union. there is no "going back."

blu's picture

Or Germany could ... say invade Poland? I think that might screw up something or other.

catacl1sm's picture

National Lampoon's European Rehypothication!


americanspirit's picture

Expecting Italy and Spain to fund the EFSF is like expecting US "consumers" (formerly called citizens) to spend this country back to prosperity, and raises the same question - with what?

WestVillageIdiot's picture

It is called "the C word".  It is known as "credit".  Don't you know, you don't need capital in capitalism?  You just need more and more credit.  That is what allows you to build.  Now get back to QVC and buy some shit you don't need.  The lines are open and the landfill awaits. 

omniversling's picture

Creditism...AKA uberehypothecatedebtism

blu's picture

Imma reposting a comment I posted earlier in the week. Looks like it plays here too:

I sometimes imagine these geniuses getting together and discussing exactly this problem. When they do, I wonder how frank they are with each other?

Banker1: "That's because the snake is eating its own tail, fellows. And it always has."

Banker2: "Well it has to eat something. And there is a great deal of snake, as it is."

Banker3: "But clearly this is not sustainable. The snake will run out of snake to eat."

Banker1: "Not really. Even when eaten the snake is all there, only some of it is now inside some other of it."

Banker3: "Do not be ridiculous. Rome did not become a great empire by eating more bread than it baked."

Banker2: "Except when it was on the march."

Banker3: "At which point it ate the bread of others. Also not sustainable in the end."

Banker1: "It may seem so. But in reality so long as the snake is eating something the world goes on. All we've ever done in the past is make sure the snake grows in length faster than it eats its own self. There needs to be a free loop of snake so it can eat itself, there does not need to be all the snake."

Banker3: "The classic Ponzi. We all know how those end"

Banker1: "Ah but this could be not the classic Ponzi but the perfect Ponzi, you see. The problem with most Ponzi operations is you run out of new money. But in this case the snake is eating itself, so in theory it can never run out of snake, even if it is not growing. Running out of something that is simply being moved around the stage would be a logical falicy."

Banker2: "Which as we all know was a good enough argument for Congress in 1913. I don't see why we need to change the story now."

Banker3: "You are both insane, you know that, don't you?"

Banker1: "Or the universe of money is more nuanced than you are prepared to admit, my friend."

Banker2: "Which time and time again has proven true, you'll admit."

Banker3: "Since 1913, perhaps you have a point. And ultimately what matters most I suppose is how long it can be stretched out. For after the day of reckoning there won't be much discussion about fallacies one way or another."

Banker1: "Not if we can engineer a large enough collapse, there won't be."

Banker2: "All or nothing, this is love."

Banker3: "[raising glass of wine] To our god Oroboros, and the all and the nothing."

[clink of glasses, the string quartet seated nearby starts in on another light Boccherini sonata. And scene]

littleguy's picture

Guys. I'm bearish. 

I've cracked.

falak pema's picture

Italy will be very rich in ten years time. And Spain in twenty years; the bitch is the next five. If only we could jump five years...lets make 29 Feb 2012, five leap year date!

WestVillageIdiot's picture

They will be swimming in Pesos and Lire.  It should be a time of great prosperity and condos for all. 

Martial's picture

Throw FranCCCe in there and it's over 50%....LOL.

Sudden Debt's picture



wandstrasse's picture

BTW, does anybody know how that 'EFSF bailout' buzzes best? Shall one sniff it, or inject, or disperse it in butter?

Misean's picture

Well, if the ESFS would see to lending Italy double what it needs to put into the EFSF, it could then lend the extra half to the EFSF so the EFSF could make the loan.

funthea's picture

In banker logic, that makes perfect sence.

Rongen's picture

You, Sir, make the most sense!

Let's get Brussels on the phone, you've solved the crisis!

chump666's picture

Just kick these f*cking countries out of the EU.  Take the pain and it'll be brutal as the CDS market blows up.  Thats the cycle of life.  Pain and pleasure

hambone's picture

Only trouble is once you've kicked out 50% of the EU...there isn't an EU. 

WestVillageIdiot's picture

"I would never belong to a club that would have me as a member."

Mactheknife's picture

>Only trouble is once you've kicked out 50% of the EU...there isn't an EU. 

And that's a bad thing?  At this point...not.

falak pema's picture

you don't get it, the money Spain puts up is the money Italy owes it and the money Italy puts up is the money Spain owes it. When Germany asks each of them for their contribution to save Portugal, Greece and Ireland, Italy will say "Spain will put up its own part as well as mine as it owes me". Spain will say the same thing. Result zero sum game.

blu's picture

Money has a quantum state? Whodanode?

The trick is to never ever go looking for any actual money. You take one look and -- poof -- the probability fields collapse and you end up with a physical asset, which only one of the parties can actually hold, leaving the rest in the lurch.

Shyte. Enough of that and there won't even be any money. Just assets. And if you want to know who then rules the world, just go where the real assets are.

disabledvet's picture

zero sum? no, no. that's ye olde "we ain't paying you back but thanks for the payday loan" gambit.