There Is No Bailout Spoon: The Math Behind The €2 Trillion EFSF Reveals A "Pea Shooter" Not A "Bazooka"

Tyler Durden's picture

The latest and greatest plan to bail out Europe revolves around using the recently expanded and ratified €440 billion EFSF, and converting it into a "first loss" insurance policy (proposed by Pimco parent Allianz which itself may be in some serious need of shorting - the full analysis via Credit Sights shortly) in which the CDO would use its unfunded portion (net of already subscribed commitments) which amount to roughly €310 billion, and use this capital as a 20% "first-loss" off-balance sheet, contingent liability guarantee to co-invest alongside new capital in new Italian and Spanish bond issuance (where the problem is supposedly one of "liquidity" not "solvency"). In the process, the ECB remains as an arm-length entity which satisfies the Germans, as it purportedly means that the possibility of rampant runaway inflation is eliminated as no actual bad debt would encumber the asset side of the ECB. A 20% first loss piece implies the total notional of the €310 billion in free capital can be leveraged to a total of €1.55 trillion. So far so good: after all, as noted Euro-supporter Willem Buiter points out in a just released piece titled "Can Sovereign Debt Insurance by the EFSF be the "Big Bazooka" that Saves the Euro?" there is only €900 billion in financing needs for the two countries until Q2 2013. As such the EFSF would take care of Europe's issues for at least 2 years, or so the thinking goes. There are two major problems with this math however, and Buiter makes them all too clear.

One: rating downgrades and ongoing deterioration - should the financing needs of not only Spain and Italy, but also Belgium and France, post its inevitable AAA-downgrade, need to be funded the total insurable amount rises to €2,371.6 billion through Q2 2014. And since there needs to be headroom, and since a number of €3 trillion has been thrown around, there is just no practicable math of how one gets from the current committed funding to the €726 billion that would be required for the full funding amount, especially with a AAA-rating still retained by the CDO. Second, and just as important, is taht the 20% first loss ratio "may well be far too optimistic." Simply said, a far more realistic recovery rate would be one of 50-60% meaning a first loss guarantee of 40-50% will be required, which collapses the total insurable "pot" to about €600 billion. Buiter's unpleasant, for Allianz, Merkel and Sarkozy conclusion is that "that would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter."

So just like we proclaimed the second Greek bailout DOA when it was announced, so we proceed to say that, once the market has had the time to digest what is really happening and proceeds to go after the weakest links in the plan one by one, that the EFSF is also dead on arrival. But in the meantime, it will buy the Eurozone a little more time to pretend that all is well, and provide skeptics with very attractive short-term EURUSD shorting abilities.

Here are some of the key observations from Buiter. First, he estimates what the pure unencumbered capital of the EFSF could be in an ideal case, starting with the flawed number, previously cited by Aliazn, of the full €780 billion in Guarantee Committment which can allegedly be used and leveraged 5-fold to get to the critical €3+ trillion number.

Total guarantee commitments from the 17 EA member states are just short of €780bn (see Figure 1).

From that number, we here subtract i) guarantees by the current set of countries with ‘stepping-out’ status (all of which are out of the primary sovereign debt markets for the time being), ii) guarantees provided by Italy and Spain, as these two countries are not credible guarantors because they are highly likely to default themselves (on their own sovereign debt and on the guarantees they provide to the EFSF) whenever there is a call on the guarantees provided by EFSF to any of the non-stepping out sovereigns, iii) other countries that, like Spain and Italy today, could potentially benefit in the future from EFSF guarantees of their sovereign debt, or are likely to ask for ‘stepping-out’ status, iv) existing and likely imminent EFSF commitments.

Next, he removes the "step out" guarantors sequentially:

Greece (€29.1bn of notional EFSF guarantee commitments), Ireland (€12.4bn) and Portugal (€19.5bn) have become “stepping-out guarantors”, that is, their guarantees cannot be called upon as long as they remain Troika programme countries receiving funding from the EFSF. Portugal remains liable as guarantor in respect of notes issued prior to the time it became a stepping-out guarantor. Estonia (€2.0bn) is only a guarantor in respect of notes issued after the effective date of the Amendments to the EFSF Framework. This means that, as of today, the aggregate of the active guarantee commitments for the guarantors which are not stepping-out guarantors is € 726bn

Then, Italy and Spain:

But, in addition to the guarantors belonging formally to the stepping-out guarantors category, there are the de-facto stepping-out guarantors which currently need the assistance of the ECB, through its Securities Markets Programme of outright purchases of sovereign debt in the secondary markets, to secure funding on affordable terms. Spain (€92.5bn of EFSF notional guarantees) and Italy (€139.3bn) are in that category since the ECB resumed its SMP purchases at the beginning of August 2011. Indeed, the insurance programmes proposed by Achleitner and Kapoor are mainly aimed at ring-fencing the Spanish and Italian sovereigns – and, lurking behind them, the sovereigns of Belgium and France - and ensuring continued access to the funding markets for them. Again, Spain and Italy cannot insure themselves when they are both at clear and present risk of being cut off from market funding at affordable interest rates and are therefore unlikely to make good on any notional guarantees they have offered to the EFSF, should the EFSF have to call on these guarantees. Taking Spain and Italy out of the €726bn guarantee pot would reduce it to €494bn

Next, remove pre-existing commitments.

Under the Troika programme for Portugal, the EFSF has committed €26bn, of which €5.8bn has been disbursed thus far. The commitment of the EFSF to the Irish Troika programme is €17.7bn, of which €3.3bn has been disbursed thus far. Subtracting the commitments of the EFSF to the Portuguese and Irish Troika programmes leaves €445.5bn uncommitted.


Under the proposed €109bn second Greek programme, the EU/EA contribution is likely to be at least two thirds, or €72.6bn, if the ‘two thirds for the EU/EU, one third for the IMF’ division of costs for the Greek Loan Facility and for the other Troika programmes is maintained. The European contribution could be higher because, as of now, the IMF has not given any formal commitment that it will make a financial contribution to the second Greek programme. The European contribution could be lower if the IMF continues to take on one third of the total official funding commitment and if the revision of the terms of the 2nd Greek bailout facility results in a smaller total official funding contribution than the €109bn announced on July 21.


Assuming, for the moment, that the two potential sources of variation cancel out, the EFSF commitment would be two thirds of the original agreement or €72.6bn. Of this €72.6bn, at most €11.5 billion could be funded by the European Financial Stabilisation Mechanism (EFSM), the supranational source of funding backed by the EU budget. This is because only €11.5bn remains uncommitted of the €60bn EFSM facility. So €61.1bn has to be subtracted from the total available for sovereign debt insurance, leaving €384.4bn uncommitted. If, as seems likely, the EFSM does not contribute to the second Greek programme, the sovereign debt insurance pot would go down to €373.9bn.2 If the IMF decides not to co-fund the second Greek programme, it goes down to €337.1bn. In addition, roughly €27bn of the European contribution to the Greek Loan Facility that has funded the first Greek bailout programme is still to be disbursed. Given the difficulties and funding rates that some of the EA creditors face in raising funding for the Greek Loan Facility (which is funded, unlike the EFSF, on a bilateral basis), it is at least plausible that the remaining tranches of the first Greek programme (i.e. €27bn) will be paid out of the EFSF pot. This reduces the EFSF resources to either €346.9bn or €310.1bn, depending on whether the IMF co-funds the second Greek programme.


Sovereign debt insurance is not the only remaining claim on these resources. The revised EFSF framework agreement mentions explicitly the possibility that the EFSF offers support for recapitalising euro area banks, including those in non-programme countries, though any such assistance would still need to be routed through the respective sovereigns.


The EFSF has already contributed to the recapitalisation of banks in programme countries (Ireland and Portugal) through loans to their governments. Sovereign debt insurance is not even mentioned explicitly under the intended uses of EFSF resources. No doubt, however, it could be shoehorned in under “precautionary facilities”. A very conservative estimate for the amount the EFSF ought to set aside for the recapitalisation of financial institutions in non-programme countries (in the first instance Spain and Italy, and beyond them possibly Belgium, France and other core EA member states) would be at least €50bn, leaving at most €296.9bn and possibly just €260.1bn for sovereign debt insurance. Clearly, banking sector recapitalisation outlays could be much larger. For instance, Citi’s equity research Banks team estimates that banks from EA countries alone that have difficulty to access private capital markets (Greece, Italy, Ireland, Portugal and Spain) currently would need €104bn to bring their Core Tier 1 capital ratio to 9%.


These estimates don’t allow for the possibility that Belgium, now on negative outlook for all three rating agencies (see Figure 1) and with historically high sovereign 5-years CDS spreads and spreads over 10-years Bunds, might join the ranks of countries needing sovereign bond insurance rather than contributing to the resources needed to provide such insurance. This would reduce the sovereign debt insurance pot to €269.9bn or €233.1bn. Having France move from the insurer to the insured category would deplete the resources available to €111.4bn or €74.6bn.

Naturally an insurance fund working with just €74.6 billion, regardless of the amount of first loss assumption is a joke. So for all intents and purposes, Buiter has used the €310 billion number bolded above.

What does this mean for total maximum notional insurable?

[There is] €310bn if France remains among the insured and no banking sector support is provided by the EFSF, around €260bn with a €50bn provision for banking sector support, and less than half that if France were to join the insured.


With a potential first loss guarantee of just 10%, the resulting maximum amount of new debt issuance that could benefit from a guarantee could be up to €3.1trn without EFSF support for bank recapitalisation or, in the more likely case of a €50bn bank recapitalisation contribution, up to €2.6trn. A 20% first loss guarantee (a figure that seems to be in the air quite a bit) would imply maximum issuance amounts of around €1.55trn or €1.3trn, respectively, and a 40% first loss guarantee would result in maximum issuance amounts of around €777bn or €650bn.

So what is the fundamental reasoning for a bailout mechanism? Why to make sure that the trillions in European debt that has to be refinance and rolled over the next 3 years, are, respecitvely, either refinance or rolled. Let's take a look at what amount we are talking about here. First the stock amount, which means insuring existing debt.

With the insurance approach, the EFSF can target flows of new sovereign debt issuance in the primary markets while leaving the outstanding stocks of sovereign debt uninsured. Under current circumstances, the EFSF could focus fully on guaranteeing new debt issues by Spain and Italy, the two sovereigns that are still in the markets but at risk of being frozen out of the markets through a fear-driven denial of market funding by the private sector. Greece, Ireland and Portugal have been taken out of the market and are being funded (in part also through the EFSF) through loans.


The ability to insure just the new flows rather than both the new flows and the outstanding stocks is valuable, as (see Figure 2) the outstanding stocks would swamp the capacity of the insurance facility.



Italy and Spain together have just under €2.5 trillion worth of general government debt outstanding. Tradable Spanish and Italian sovereign debt alone amounts to €2.1 trillion. Adding Greece, Ireland and Portugal raises general government debt to €3.1 trillion and tradable government debt to €2.6 trillion. Adding Belgium would raise these totals to €3.5 trillion and €2.9 trillion. In the perhaps unlikely case that France would need sovereign debt insurance, targeting the stocks rather than the flows would require taking care of €5.1 trillion of gross sovereign debt or €4.3 trillion of tradable government debt.


These numbers are beyond the size of even the most optimistic estimates of the most audacious of rescue umbrellas. Fortunately, to avert a funding disaster for the vulnerable sovereigns, only the flows of new funding need to be insured. As Figure 3 makes clear, these flows, while large, are more manageable than the stocks.

Flows simply means focusing on new issuance, to guarantee there is a natural market bid from the private sector, combined with a helping hand from the EFSF. How much debt would have to be insured? Well, depend on which of three scenarios we are looking at: i) just Spain+Italy; ii) Spain+Italy+recently imploding Beligum; or iii) Spain+Italy+recently imploding Beligum and most recently collapsing France (take one look at the OAT-Bund spread to see what we are talking about). The numbers are not any prettier.

Focusing on the flows that matter, the total financing needs of Spain and Italy, Figure 3 gives us €153bn for 2011 Q4, €557bn for 2012, €348bn for 2013 and €295bn for 2014. For the seven quarters from 2011 Q4 to 2013 Q2 (the last quarter before the start of the European Stabilisation Mechanism, the successor of the EFSF) the total financing needs of Spain and Italy are €881bn.5 For the 11 quarters from 2011 Q4 to 2014 Q2, they amount to €1,196bn. Adding Belgium raises the seven-quarter funding total to €1,006bn and the 11-quarter total to €1,377bn. This would be manageable if the markets were willing to fund these amounts with a 20 percent first loss guarantee, assuming the triple-A insurance capacity of the EFSF is around €300bn and the market provides new funding to the sovereigns at acceptable rates with a 20 percent first-loss guarantee. If, however, France were to join the ranks of the countries needing external official guarantees to fund themselves, the seven-quarter total funding need would go up to €1,684bn and the 11-quarter total to €2,372bn. Neither would be manageable with the existing size of the EFSF resources.

Here Buiter makes a great point: the EFSF would effectively create two markets in each nation's sovereign securities: existing, or ex-guarantee, and post EFSF, including the guarantee:

Of course, focusing the insurance on the flows of new funding alone leaves the prices of the outstanding stocks of sovereign debt to be determined in the secondary markets, with the ECB most likely absent from the secondary markets if the insurance option is implemented. We see no point in supporting an orderly secondary market through outright purchases of sovereign debt under the Securities Markets Programme, even if the price in the (uninsured) secondary market is significantly below that in the (insured) primary market. Banks and other systemically important financial institutions that have to mark their holdings of sovereign debt to market will of course be adversely affected by any wedge between the primary and secondary market prices, and may even have to raise additional capital to deal with any mark-to-market losses, but that is the way of markets and market economies.

But wait there is more. The biggest weakness of the EFSF is the embedded assumption for how much first-loss a potential investor will be ok with. According to Allianz and the Europeans 20% should be sufficient. It won't be.

Even in the absence of a panic, the (average) 20 percent first-loss ratio assumed in much of the calculations in this note may well be far too optimistic.


The historical recovery rate for sovereign defaults from 1983 up to 2010 reported in Moody’s (2010) is only 53 percent (issuer weighted) and as little as 31 percent value-weighted. Sturzenegger and Zettelmeyer (2005) find, in a study covering sovereign defaults between 1998 and 2005, haircuts ranging from 13 percent to 73 percent. Clearly, the cost of default to the defaulting sovereign has an element of fixed cost in it. The reputational loss associated with a breach of contract does not double if the recovery rate falls from 80 percent to 60 percent. Even if sovereign defaults are unlikely and infrequent, the size of the NPV loss for the investors conditional on a default having occurred is therefore likely to be large: if the sovereign is going to default at all, she might as well be hung for a sheep as for a lamb.

And any incremental rise in the first loss guarantee threshold implicitly removes the leveragability of the underlying notional. Said otherwise, a €310 billion pot which insures 50% of losses, means a mere €620 billion in notional can be guaranteed: a failure off the bat which the market will stampede over.

Which brings us to Buiter's less than glowing conclusion:

The partial/first loss sovereign debt insurance proposal has merits. Its principal value is that it permits the decoupling of the essential flow funding aspect of the Euro Area sovereign debt crisis from the much less important stock valuation aspect. Insurance can be offered for new issuance of sovereign debt in the primary markets without extending the offer to the outstanding stock of debt – the debt traded in the secondary markets. The further option of using the partial insurance route to enhance sovereign debt issued as part of a sovereign debt restructuring, e.g. through a ‘voluntary’ exchange along the lines of the Greek PSI proposal, is also valuable.


There are three problems with the specific proposal made by Achleitner and Allianz. First, we believe the arithmetic materially overstates the total amount of debt issuance that could be insured with the existing resources of the EFSF. To get to the €3 trillion worth of debt touted in some of the proposals, we estimate the EFSF would, with an average first-loss guarantee of 20 percent, have to make available for its insurance activities nearly all of its notional €726bn worth of non-stepping-out member state guarantees, and these resources would have to be viewed by  wouldbe insurance purchasers as being of triple-A quality. This would mean (1) that the EFSF would have to renege on all its outstanding and pending commitments other than insurance, (2) that Spain and Italy would effectively be insuring themselves, and (3) that a triple-A guarantee capacity of €440bn is miraculously transformed into one of €726bn.


Second, the insurance mechanism is not fool-proof or disaster-proof. There is no guarantee that, in a panic, the most generous terms on which the insurance could be offered (say, for free) would be attractive enough to bring in sufficient private buyers of the insured sovereign debt. Failed auctions and sovereign default are not ruled out. A standby purchaser of last resort for sovereign debt is required. This standby purchaser of last resort would have to be either an official entity or a private entity created, funded and directed by the official sector.


It could be the ECB through the SMP along the lines of its interventions buying Greek, Irish and Portuguese sovereign debt since May 2010 and Spanish and Italian sovereign debt since August 2011. However, because of the Treaty prohibition on the central bank funding sovereigns directly, the ECB can purchase sovereign debt only in the secondary markets, which would be an inefficient use of public resources. The ECB could end up owning much of the outstanding stock of periphery EA debt to achieve a relatively limited amount of new funding by the periphery sovereigns. 


It could be the EFSF, which can operate in the primary issue market, even without the EFSF being granted eligible counterparty or ‘bank’ status allowing it to borrow from the Eurosystem against collateral. That would, however, restrict the volume of such purchases to the uncommitted part  of the EFSF’s own resources. To have a bigger standby bazooka, either the EFSF, or some special purpose vehicle created by the EFSF (possibly in conjunction with the European Investment Bank, which has eligible counterparty status with the Eurosystem) would have to be granted eligible counterparty status for collateralised borrowing from the Eurosystem. The remaining resources of the EFSF could be used to provide capital for this ‘Bazooka Bank’, and/or to guarantee the loans from the ECB to the Bazooka Bank, which would in any case be secured with the sovereign debt purchased in the primary market by the Bazooka Bank.

Third, and last, is the abovementioned shortfall in the first-loss tranche, which will need to be substantially increased, potentially doubled, to provide bidder with a safety of mind that even in a worst case, read 60% recovery scenario, they will not suffer catastrophic losses.

We therefore are sceptical that, if there is a reasonable expectation that the recovery rate following a sovereign default in the Euro Area could be as little as 60 percent or 50 percent, that the markets would be happy to fund these sovereigns at sustainable interest rates to the sovereigns, with just a 20 percent first-loss rate, even if this insurance were granted free of charge. A 40 or even 50 percent first-loss rate might well be required. And that would reduce the amount of new issuance that could be funded with an EFSF insurance pot of, say, €300 bn at most to just €750bn or even €600bn. That would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter.

As we said: once the market (forget the polticiians: they would want nothing more than for nobody to see this analysis) is made comfortable with this actual math, it will realize that the EFSF as an Allianz rescue facility, pardon, insurance fund, is Dead on Arrival. After all, and logically, if this formulation was the best and safest one, it would have been proposed months, if not years earlier, not been used as the last ditch Deus Ex Machina, with just 5 days until the European Summit.

We can't wait until this latest episode of cognitive bias (EFSF will work) clashes with the hard reality of math and numbers.

Comment viewing options

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

Math always ultimately prevails upon psychology.

GeneMarchbanks's picture

Not always, as a day like today, demonstrates.

iDealMeat's picture

You both may be proven right before the close.


Irish66's picture

They (FRANCE AND GERMANY) agreed on 2 tr euro

The Limerick King's picture



A Eurozone crises averted?

New leverage will soon be inserted

So simple and sweet

Just wash, rinse, repeat

This Kleptocrat game is perverted!


Mactheknife's picture

France will QUICKLY lose their AAA rating...wait till you see what that brings.  LMAO

Mactheknife's picture

Amidst all the conniving to make the EFSF bazooka credible, the bond market has cast its vote already.

Sudden Debt's picture



ehe... I wouldn't put money on that. I did once and it made perfect sence and I lost my shirt.

the psychology of the state guarantees is keeping these curtains up. The math says there simply isn't enough money to back up all those guarantees.

and yet... the market is still way above the 2008 bottom... go figure...

logic and math won't cut it my friend.

Insanity and hangovers rule the markets and the world these last few decades.

DoChenRollingBearing's picture

Pea shooter be shootin' blanks!

I do not have a bazooka, but I do have a 9 mm and AK to keep me feeling safe...

Shootin' blanks bitchez!

dkd's picture

better to pea shoot than not shoot at all!


myne's picture

It looks like the Euro's only option is to gift each and every citizen and pension account of each and every nation a giant cash bonus.

It will: inflate away nearly all debts while retaining the relative value of each pension.

Yes, all prices will rise massively in a very short timeframe, but with the euro denominated debts gone, the system will effectively reset. With each nation essentially on the same footing - just with very little debt.

Bail out the people and the banks will be bailed out by default.

It's the monetarists version of a debt jubilee.


Ghordius's picture

The EuroZone wants to keep options open.

Is part of the village still intact? Is a part already burnt down?
Wait, don't send the Tsunami in yet...
Damage Control.

Little John's picture

No it doesn't. The human mind is greater than the sum of it's parts and does not lend itself to mathematical modeling - see Kurt Godel’s incompleteness theorems.  

Little John's picture


No it doesn't. The human mind is greater than the sum of it's parts and does not lend itself to mathematical modeling - see Kurt Godel’s incompleteness theorems.  


beartoe's picture


How many zeros?
Long scale is the English translation of the French term échelle longue. It refers to a system of large-number names in which every new term greater than millionis 1,000,000 times the previous term: billion means a million millions (1012), trillion means a million billions (1018), and so on.[1][2]
Short scale is the English translation of the French term échelle courte. It refers to a system of large-number names in which every new term greater than million is 1,000 times the previous term: billion means a thousand millions (109), trillion means a thousand billions (1012), and so on.[1][2]


TooBearish's picture

Awesome work ....or give me $2 and i will give u 1$ back.....

I think I need to buy a gun's picture

i'm so sick of all of this shit.....the garble on cnbc is at a peak....WTF is goig on just collapse this bitch or revalue gold or give me 1 dollar back for every 100 i have so I know where we are going this is getting old all this bullshit i'm trying to run a business here..........

Mugatu's picture

So if I owe someone $1000 dollars and I only have $200, I can guaranty the first $200 of loss and everyone is happy?  Can I do this with my mortgage?  Hey Obama, lets roll out this plan for all these people with negative equity and $500,000 in home equity loans!


schoolsout's picture

Incidentally, Paulson's bazooka was the same thing, too...

Lazane's picture

no amount of math is going to fix these financials 

redpill's picture

Will a pea shooter help us eat our peas?

EL INDIO's picture

Let me guess...It'll go in favor of the manipulators.

LawsofPhysics's picture

Ah yes, because capital controls always lead to a favorable outcome.

nobusiness's picture

The author misses one important point - NO ONE EVER DEFAULTS IN THIS BIZZARRO WORLD.

macholatte's picture


and there you have it.

Clearly, obviously and openly the governments around the world are busting their respective asses to maintain the status quo. Every day for months they throw shit at the wall in the hope that something, anything will stick. Some guy writes a report, proposes a plan, throw it at the wall. Did it stick? No? Go make up something else. In the mean time, manipulating the markets is what they must do in order to maintain control so that is what they do. Their goal is clearly to keep the Euro alive and kick the can so they can buy time. Problems surfacing in 2012 sounds good to them. Delay until 2013 is even better. Kick it out to 2015 is almost orgasmic. Facts don't matter. Perception is everything. 

MarkTwain00's picture

I think busting their asses is giving them too much credit....more like pick a ball from the bullshit lottery ball machine to feed to public

Hard work is not something these people understand 

Josh Randall's picture

A deal is worked out - the math behind the deal isn't important right now..

jdelano's picture

MMmmm....I smell more meat for the grinder.

AbelCatalyst's picture
German Exit Strategy... Here's a possible way for Germany to get out of this mess: Drop out of the Euro and go back to the Mark.  The Mark will appreciate significantly against the Euro, and becasue all of their debt is in Euros, this means they could easily pay back the debt using Marks.  It's like hyperinflating away debt, and having your neighbors suffer the consequences.  Of course, this would lead to war, but the Germans would be fine (until someone drops some bombs on major cities).   The Euro would spiral into the abyss and their main trading partners would not be able to buy anything from Germany, but with virtually no debt they would be just fine, thank you very much!  After all, it is better than working with 17 other countires to solve thier debt issues...   A few weeks ago a very credible source said that Germany was in the process of printing Marks...  hmmm, could this be the Black Swan that will take down the world economy...  Something is about to give in Europe and this very well could be the triggering event.  Thoughts?
Deadpool's picture

Euro was Germany's idea. they can't "drop out". It's their baby.

john39's picture

who says that Germany has to play fair...  they have been screwed in the past, so why not?

Instant Wealth's picture

Euro was France´s idea. It was the prize, Germany had to pay for reunification.

Quote Francois Mitterand. "Versailles without shooting *giggle*."

Steroid's picture

As I remember, the Euro was the price for German reunification. Any member could have used it to its advantage but only the best did though they become the host to the parasites.

Deadpool's picture

The earliest date was in Germany, where the mark officially ceased to be legal tender on 31 December 2001, though the exchange period lasted for two months more.

PY-129-20's picture

According to Austrian Economist Bagus, who is a university professor in Spain, the Euro was a French idea and the whole EU project turned into a socialist experiment, an empire.


In direct opposition to the classical liberal vision [of Adenauer(Germany), Schuman(France) and Alcide de Gasperi (Italy)] is the socialist or Empire vision of Europe, defended by politicians such as Jacques Delors or Francois Mitterand."

"It wants to see the European Union as an empire or a fortress: protectionist to the outside and interventionist on the inside."

"The socialist vision for Europe is the ideal of the political class, the bureaucrats, the interest groups, the privileged, and the subsidized sectors who want to create a powerful central state for their own enrichment Along the socialist path, the European central state would one day become so powerful that the sovereign states would become subservient to them. (We can already see first indicators of such subservience in the case of Greece. Greece behaves like a protectorate of Brussels, who tells its government how to handle its deficit.)"

"Before the introduction of the Euro, the Deutschmark was a standard that laid bare the monetary mismanagement of irresponsible governments. While the Bundesbank inflated the money supply, it produced new money at a slower rate than the high inflation of—especially southern European—countries, who used their central banks most generously to finance deficits"

"If the Euro means so many disadvantages for Germany, how is it possible that Germany agreed to its introduction? The fact is, the majority of the population wanted to keep the Deutschmark (some polls say up to seventy percent of Germans wanted to keep the Deutschmark). Why did politicians not listen to majority opinion? The most feasible explanation is that the German government sacrificed the Deutschmark in order to make way for reunification in. When the Wall came down, unification negotiations began 1990."

"Former translator for Mitterand, Brigitte Sauzay, writes in her memoirs that Mitterand would only agree to the German reunification “if the German chancellor sacrificed the Mark for the Euro.”

"Jacques Attali, adviser to Mitterand, made similar remarks in a TV interview in 1998"

"Another confirmation of these events is provided by Hubert Védrine, also a long time adviser to Mitterand, and later his minister for foreign affairs"
Read more about it: THE TRAGEDY OF THE EURO By Philipp Bagus; Ludwig von Mises Institute)

Deadpool's picture

Bagus is lame. I only listen to Krugman.

lookma's picture

Its hard to imagine a more utterly ignorant book about the Euro than the garbage Baggus published.

The most feasible explanation is that the German government sacrificed the Deutschmark in order to make way for reunification in.

Seriously, take the made up LvMI propoganda and go elswhere please.  LOL at LvMI, who much like the US lives by consuming the capital of its forbearers in lieu of any insightful production of ideas.  Mises would hate you poser conservatard.

JohnG's picture

Not only the world economy, but the entire WORLD.  WW3 quick.  NATO breaks up and it's every man for himself.  Bad option any way you look at it.  Looks like were all fucked.  On a long enough timeline......

Belarus's picture

You know, it's funny. Everyone, including guys like Gonzola Lira, assume that Germany is this huge creditor. But lest they forget, they are a debtor nation. They won' worry about their sovering holdings being paid back in depreciated EUR's agains the Mark. They'll at worst get partity between what they owe and what they recieve + gold holdings. 

Kyle Bass is right, ultimately, Germany leaves the EU. How does one short the EUR/USD?

Ghordius's picture

How many WW2 movies fuel this thought?

Snakeeyes's picture

BRUSSELS (Reuters) – Calls are growing for euro zone states to consider issuing bonds jointly underwritten by all 17 countries in the bloc — so-called euro zone bonds. European Commission President Jose Manuel Barroso promised on Wednesday to present options soon.

Some economic analysts, senior European Union officials, members of the European Parliament and financial market participants believe such a step could help resolve the region’s debt crisis, but little flesh has so far been put on the bones of the idea.

Talk about heaping European woes on the shoulders of Germany! Weaker and financially stressed governments want to pool with the strongest economy to free-ride off their superior credit rating. I will be surprised if Germany agrees.

And that is the problem with all the European solutions — there is too much free-riding off of Germany. Let’s see if the IMF (and the U.S.) step into the breech and guarantee European debt.

As Shakespeare wrote in Henry V, Act III, Scene I. The eve of another big battle against the French…

“Once more unto the breach, dear friends, once more;
Or close the wall up with our German dead.”

Deadpool's picture

Germany (aka Huns) have to agree. the Euro was their devil spawn brain child. It will happen with them kicking and screaming. Call it War Reparations 2.0.

PivotalTrades's picture

Now in for a penny in for a pound. If they are not ideologically against a bailout, they will be all in eventually.

Bob's picture



Thus far, with rough and all-unable pen,
Our bending author hath pursued the story,
In little room confining mighty men,
Mangling by starts the full course of their glory.
Small time, but in that small most greatly lived
This star of England: Fortune made his sword;
By which the world's best garden be achieved,
And of it left his son imperial lord.
Henry the Sixth, in infant bands crown'd King
Of France and England, did this king succeed;
Whose state so many had the managing,  
That they lost France and made his England bleed:
Which oft our stage hath shown; and, for their sake,
In your fair minds let this acceptance take.


catacl1sm's picture

You know what this means, don't you?



Ruffcut's picture

All the greens shoots, I see,  are always covered in feces.

kito's picture

shirley this plan will fix everything. after all, markets are up today, and we all know that the "free market" is the most effective gauge of the truth. right? right?