Risk Drifts Lower On News Germany To Delay EFSF Implementation Until 2012, Abysmal Debt Rollover Participation

Update: more bad news as Reuters reports that participation in the Greek private sector debt initiative at just under 75% according to financial sources. This is a miserable miss to the required 90% and means that the debt rollover initiative is basically dead in its tracks, as 25% of the bondholders will become holdouts and seek to derail the entire Bailout #2 process in return for massive "nuisance value" payments. Problem is nobody will pay said demanded payment.

Those seeking a reason for the sudden drop on no news, can attribute the weakness in the EURUSD and its 1.000 correlated derivative, the US policy vehicle known as the stock market, to the following news making the rounds brought to us by RanSquawk, namely that Germany is likely to delay ESM legalisation beyond year end of 2011. Specifically, "facing a storm of protest from within its own ranks, Germany's ruling coalition government has delayed discussing the ESM in cabinet meaning that legislation on the Eurozones permanent rescue fund, will not likely be in place by end of this year as hoped." As a reminder, Stark quit due to disagreement over the SMP's usage. This most recent update means the SMP program, not only will not end as was expected originally in September, but will be forced to monetize Italian debt for at least three more months, and likely much longer, until the EFSF is activated, some time in Q1 2012. This also means that the ECB's SMP program, currently pregnant with €140 billion of PIIGS bonds, will expand to double its size by the end of the year, further pushing the zEURo lower as Europe continues with its explicit debt monetization on the books, and not as was envisioned before, using an SPV in the form of the EFSF.

We will bring more as we see it.


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