Spiegel: Investors Prepare For Euro Collapse

Tyler Durden's picture

Two years in and they are only starting now? What took them so long. Also, absolutely nothing new here, but merely the latest attempt to shift public opinion and EUR viability perceptions ever so slightly by one of Germany's most respect magazines. Those whose agenda it is to spook Germany with images of fire, brimstone, and 3-page mutual assured destruction termsheets if the Euro implodes, are now free to take the podium. One wonders: if it wasn't for the inevitable collapse of the EUR.... the inevitable collapse of the EUR.... the inevitable collapse of the EUR.... the inevitable collapse of the EUR, and of course Paul Ryan, would there be absolutely no news today?

From Spiegel:

Investors Prepare for Euro Collapse

Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen.

There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.

There's a growing sense of resentment in both lending and borrowing countries -- and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. Meanwhile the the leader of Germany's opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.

On the financial markets, the political wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro.

. . .

Banks are particularly worried. "Banks and companies are starting to finance their operations locally," says Thomas Mayer who until recently was the chief economist at Deutsche Bank, which, along with other financial institutions, has been reducing its risks in crisis-ridden countries for months now. The flow of money across borders has dried up because the banks are afraid of suffering losses.

According to the ECB, cross-border lending among euro-zone banks is steadily declining, especially since the summer of 2011. In June, these interbank transactions reached their lowest level since the outbreak of the financial crisis in 2007.

In addition to scaling back their loans to companies and financial institutions in other European countries, banks are even severing connections to their own subsidiaries abroad. Germany's Commerzbank and Deutsche Bank apparently prefer to see their branches in Spain and Italy tap into ECB funds, rather than finance them themselves. At the same time, these banks are parking excess capital reserves at the central bank. They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them.

"Even the watchdogs don't like to see banks take cross-border risks, although in an absurd way this runs contrary to the concept of the monetary union," says Mayer.

* * *

Unicredit is an ideal example of how banks are turning back the clocks in Europe: The bank, which always prided itself as a truly pan-European institution, now grants many liberties to its regional subsidiaries, while benefiting less from the actual advantages of a European bank. High-ranking bank managers admit that, if push came to shove, this would make it possible to quickly sell off individual parts of the financial group.

In effect, the bankers are sketching predetermined breaking points on the European map. "Since private capital is no longer flowing, the central bankers are stepping into the breach," explains Mayer. The economist goes on to explain that the risk of a breakup has been transferred to taxpayers. "Over the long term, the monetary union can't be maintained without private investors," he argues, "because it would only be artificially kept alive."

The fear of a collapse is not limited to banks. Early last week, Shell startled the markets. "There's been a shift in our willingness to take credit risk in Europe," said CFO Simon Henry.

* * *

One person who has long expected the euro to break up is Philipp Vorndran, 50, chief strategist at Flossbach von Storch, a company that deals in asset management. Vorndran's signature mustache may be somewhat out of step with the times, but his views aren't. "On the financial markets, the euro experiment is increasingly viewed as a failure," says the investment strategist, who once studied under euro architect Issing and now shares his skepticism. For the past three years, Vorndran has been preparing his clients for major changes in the composition of the monetary union.

They are now primarily investing their money in tangible assets such as real estate. The stock market rally of the past weeks can also be explained by this flight of capital into real assets. After a long decline in the number of private investors, the German Equities Institute (DAI) has registered a significant rise in the number of shareholders in Germany.

Particularly large amounts of money have recently flowed into German sovereign bonds, although with short maturity periods they now generate no interest whatsoever. "The low interest rates for German government bonds reflect the fear that the euro will break apart," says interest-rate expert Burkert. Investors are searching for a safe haven. "At the same time, they are speculating that these bonds would gain value if the euro were actually to break apart."

The most radical option to protect oneself against a collapse of the euro is to completely withdraw from the monetary zone. The current trend doesn't yet amount to a large-scale capital flight from the euro zone. In May, (the ECB does not publish more current figures) more direct investments and securities investments actually flowed into Europe than out again. Nonetheless, this fell far short of balancing out the capital outflows during the troubled winter quarters, which amounted to over €140 billion.

"We notice that it's becoming increasingly difficult to sell Asians and Americans on investments in Europe," says asset manager Vorndran, although the US, Japan and the UK have massive debt problems and "are all lying in the same hospital ward," as he puts it. "But it's still better to invest in a weak currency than in one whose structure is jeopardized."

* * *

investors are increasingly speculating directly against the euro. The amount of open financial betting against the common currency -- known as short positioning -- has rapidly risen over the past 12 months. When ECB President Mario Draghi said three weeks ago that there was no point in wagering against the euro, anti-euro warriors grew a bit more anxious.

One of these warriors is John Paulson. The hedge fund manager once made billions by betting on a collapse of the American real estate market. Not surprisingly, the financial world sat up and took notice when Paulson, who is now widely despised in America as a crisis profiteer, announced in the spring that he would bet on a collapse of the euro.

Paulson is not the only one. Investor legend George Soros, who no longer personally manages his Quantum Funds, said in an interview in April that -- if he were still active -- he would bet against the euro if Europe's politicians failed to adopt a new course. The investor war against the common currency is particularly delicate because it's additionally fueled by major investors from the euro zone. German insurers and managers of large family fortunes have reportedly invested with Paulson and other hedge funds. "They're sawing at the limb that they're sitting on," says an insider.
So far, the wager by the hedge funds has not paid off, and Paulson recently suffered major losses.

* * *

And so on - more here

What is ironic is that the worse Europe gets, and the greater the threat of redenomination risk which has yet to be address properly by the ECB, the higher the S&P will go regardless of any macro, micro data, or even broad liquidity injection expectations, simply because as equity capital flows out of Europe, since it seeks equity-like returns, it will merely end up in US equities, not bonds or gold, where it will merely marinate until another Europe emigrating "greater fool" is found.

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buzzsaw99's picture

Paulson and the squid should be rotting in prison on racketeering convictions.

Nadaclue's picture

Don't forget the rest of the crew. Dimon, Timmaaayyy, Chairsatan, hell, it'd be easier to list the ones that don't belong in bubba's cell.

The Big Ching-aso's picture



Just remember they have Borg proteges in waiting if they're removed. 

old naughty's picture

So they will carry on the ponzi...

Until muppets are dried.

TruthInSunshine's picture

It's kick the can until the can has oxidized into dust, and can no longer be physically kicked.

SSDD, bitchez. There won't be any pre-announcements to give everyone a heads up when they admit the conclusion, already brought to them in reality by the inescapable laws of arithmetic, that the parrot is no more, having ceased to exist.


Germany won't be able to recapitalize the losses wrung up by a decade+ of spendthrift ways, phony GDP and an accumulated Mount Everest of bad debt by the PIIGS without inducing a far worse economic intra-German crisis (for taxpayers/consumers/savers/businesses) than the less-bad scenario that would occur by cutting itself loose of the noose that is the EU.

govttrader's picture

so ur sayin not to buy those Dec 1340 puts on the S&P just yet...

fuu's picture

Nice to know you only work M-F and that you don't link pimp on the weekends.

I'm still not sure why you go back to dead threads and cap them off with your link. Today you've been on most every article on the main page, 2 from July, and 1 back in May.

Lost Wages's picture

Just another derpity doo trying to monetize his blog & skim off the traffic. He'll start a YouTube page too if he hasn't already & every video will have an ad at the beginning.

malikai's picture

You make her look so young!

TheGardener's picture

She would probably like herself being pictured as such ,even more so as "Europa on the steer". Not going to happen, sorry Angie bitch. Just lead the German Ox further into that Euro
swamp .

supermaxedout's picture

Here some more fun from Angie, The mother of the USE. Unfortunatelly the child has no father but this is not unusual nowadays. I suspect its either Silvio Berlusconi or the German Pope Benedikt.


Sudden Debt's picture

you can prepare in 6 mouse clicks.
get out of the euro completly in 7 clicks
and watch porn with 8 clicks.

bill gates best invention, the computermouse. So he will be to blame for the comming collapse :)

Freewheelin Franklin's picture

But how many clicks can you name that tune in?

Vince Clortho's picture

Bill Gates invented the mouse? lol

Knowledgeable people know Al Gore invented it.

TWSceptic's picture

If he did invent it, which he didn't.

supermaxedout's picture

The History of the Computer Mouse and the Prototype for Windows - Douglas Engelbart

Never heard from him but sounds very German. Funny name: Angelbeard

TrulyStupid's picture

The real question is: who invented the graphical user interface? *


*Wikipedia may or may not be controlled by the CIA and the Ministry of Truth


dynomutt's picture

I'll be sure to find a way to Douglas Engelbart that.  I'm sure he'll be glad that you're blaming the "computermouse", and by extension, the "comming collapse" on Bill Gates.  He should be happy about not being blamed for the collapse.

ml8ml8's picture

Implied and realized vols on most equity index options are hitting intermediate term lows.  Nice time to buy some protection if you need it...

slaughterer's picture

Protection?  We are standing at the gates of ES 1425.  

Temporalist's picture

"They are preparing themselves for the eventuality that southern European countries will reintroduce their national currencies and drastically devalue them."

I don't think we're in Uganda any more Toto.

drink or die's picture

Sounds like it's almost time for another Euro summit announcement  to calm people down. 

Temporalist's picture

This should make "the people" calm:

"the risk of a breakup has been transferred to taxpayers."

Peter Pan's picture

2000 years ago if systems and nations collapsed, the gold and silver money formed the foundation of whatever and whoever followed. After 2000 years people will soon find out that nothing has changed.

urbanelf's picture

Germans with whom I've spoken suggest that their countrymen are rather apethetic to the situation.  People aren't talking about it very much, as though the problems don't really exist.  It doesn't surprise me that investors are just starting to get ready.

slaughterer's picture

Germans were conditioned by East/West reunification to reluctantly pay for expensive unity projects.   There is no Nigel Farage type politician in Germany of any importance.  

old naughty's picture

Interesting (perhaps funny) you mention Nigel Farage... the writer of the article below wants to part company with him because he is not as good in killing the dead as Abraham Lincoln: Vampire Hunter 

A Lunatic's picture

It's the same everywhere you go, as it takes a special dedicated effort to stay informed, only to find that the truth is an ugly fucking thing.

cranky-old-geezer's picture



Germany has nothing to lose in an EU breakup and everything to gain.  Euro debt they're responsible for would devalue as the Euro devalues against the new German mark.  In fact they might just renig on all of it.  Just walk away from it.

ECB would be the big loser.  Those trillions of sovereign debt on their books would become worthless and Draghi would be the laughing stock of the world.

No, bankers won't let their Euro ponzi scheme collapse if there's any way to prevent it.

But they're running out of ways to prevent it.  In their lust for profit they loaned too much money to deadbeat EU governments like Greece, just like any greedy banker making too many loans to bad credit risks, looking for those huge interest payments.

Euro sovereign debt is just like American sub prime debt.  It pays much higher than market interest rates, but it's worthless.  It'll never be paid back.  Bankers know this but they don't care.  They're happy to collect the interest payments forever.

Why do they not care about ever getting the principal back?   Because it didn't cost them anything.   They created it out of thin air.

Nonetheless they want Germany to "guarantee" it.  Pay off the debt as it matures if deadbeat debtor nations don't pay it off.

Imagine that.  Money they created out of thin air has to be paid back by Germany if deadbeat debtors like Greece don't pay it back.  And they think Germans are gonna do that?

Of course Germans won't do it.   Nobody in their right mind would do it.  Draghi knows this too.  He knows Germany will never pay back one Euro of Greek debt.

He knows Germany's "guarantee" is there just to make those bonds look like they're worth something.  Worthless Greek government bonds (or Spanish, Italian, etc) "guaranteed" by Germany's AAA credit rating.

Without Germany's "gurarantee"  those bonds would drop to zero value on ECB's balance sheet, Draghi would be the laughing stock of the world, people would suddenly realize ECB is just a big money printing scam,  the Euro would collapse overnight, and their EU ponzi scheme comes crashing down.

The EU wasn't created for Europeans.  It was created for bankers.  So bankers could inflate a huge interest paying sovereign debt bubble, just like bankers in America inflated a huge interest paying subprime debt bubble.  There's no difference really.  Both are subprime debt.  Greece and Spain and Italy are deadbeats just like those NINJA mortgages (no-income-no-job) in America.

"Soveriegn" doesn't make them any better.  Their bonds are worthless.   They'll never be paid off, just like that NINJA mortgage will never be paid off.


pashley1411's picture

I understand that Germans were pretty blase about the beginning of WWII as well.   As opposed to all the hoopla and cheering over the beginning of WWI.

If you learn nothing else over here, its that the sheep don't know, and don't care to know.

Josh Randall's picture

Blame the Griswalds - Euroland has not been the same since they've visited

samsara's picture

Remember, if you were on the Titanic, and in the 'steerage class' You were told the ship was sinking ONLY AFTER the first class passengers were already safely in the life boats and had already cast off.   (and maybe have  some property in Paraguay).

YesWeKahn's picture

Well, investors have been preparing this by buying us stocks. Because the idiot Bennanke will print like mad when that happens.

Yardfarmer's picture

If you really want to go into some depth on the history of the establishment of the European Union, an exhaustive,well documented and well worth reading treatment is at the following. The seeds of European economic destruction were sown many decades ago in the so-called plan for European Unification under the aegis of the Bilderbergers.

Jean's picture

If the Euro zone sheds a few members, why wouldn't a long EUR position be good? Once the political and institutional pain from those write downs (which may have already happened) goes, a Teutonic Euro with or without the French would be attractive.

donsluck's picture

Agreed. But the timing is critical.

Jean's picture

Timing, yes. My lack of insight into what has already been covered by the various bailout mechanisms, keeps me far away from that game.

Bastiat009's picture

I don't believe one single word of this because the story fails to identify the "investors." If you have a 401k, you're an investor and what exactly do you do about the euro collapse (remember that last summer, all the stories were about the US$ collapse)?

Can someone just report the news, plain and simple instead of constantly printing wishful thinking or scare-triggering pieces.

Snakeeyes's picture

Let's see. Ruanaway debt in most of Europe? Check. Negative budget deficits? Check. No will to tell freeloaders to pay their own freight? Check. China, Jspsn and US slowing? Check.


Dan Conway's picture

And don't forget to check the poor demographics box!

Dareconomics's picture

As long as the Swiss National Bank can print, the euro will not collapse. Swiss buying is keeping the euro afloat. I wrote about this earlier today:

orangegeek's picture

Euro won't disappear, it will just be worth a lot less.  Below 80 as it was in 2000.

Rip van Wrinkle's picture

You think Bernanke is going to let the dollar appreciate that much and see US exports collapse? Good luck with that.

Dan Conway's picture

Who really knows and gambling on the outcome looks to be a losing bet.  If the deadbeats leave the euro, shouldn't the euro strengthen?  If Germany leaves the euro, shouldn't the euro vaporize?  And once the euro situation is settled, don't you think that people will start asking about the viability of the USD?  Hasn't the US stock market been a one-sided trade for the last six months and is that sustainable?  The only thing I know is that this is all screwed up and won't last but I am certain that I won't be able to time it right. 

Laretes's picture

Old news. Spiegel is usually rather slow about picking this type of story up and the English version is usually just a translation of older German articles.

Joe A's picture

Some countries leaving the euro will be bad for the euro in the short term and will be bad for these leaving countries as well but long term it will strengthen the euro.

supermaxedout's picture

Spiegel = US and UK propaganda