It Just Went From Bad To Far, Far Worse As Germany Says Italy Is Too Big For EFSF To Save, Refuses To Carry Euro Bailout Burden

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r101958's picture
Status: Martenson Brigade Member (Offline)
Joined: Aug 24 2008
Posts: 257
It Just Went From Bad To Far, Far Worse As Germany Says Italy Is Too Big For EFSF To Save, Refuses To Carry Euro Bailout Burden

The hits just keep on coming.

The following is a post from ZeroHedge and Tyler Durden (12:20pm 6Aug2011):

Remember when we said (yesterday) that Germany will soon balk over the fact that it is pledging its entire economy to bail out an insolvent Europe? Well, that moment has come.

Dow Jones just hitting the tape referencing Spiegel

    German Govt: Italy Too Big For EFSF To Save - Spiegel
    German Govt: Doubts Whether Tripling EFSF Would Help It Save Italy
    German Govt: Italy Must Make Savings, Reforms To Exit Crisis - Spiegel
    Italy Debt Guarantee Could Raise Doubts Over Germany's Finances - Spiegel
    German Govt: EFSF Should Only Help Small, Mid-Size Countries - Spiegel

As a reminder, yesterday's stopgap announcement by the ECB to expand its SMP purchases of secondary market Italian and Spanish bonds was merely as a precursor to full EFSF monetization until its comes fully online in September (or sooner) in a vastly expanded format (between €1.5 and €3.5 trillion).

If Germany is now against this, which appears to be the case, it pretty much means, well, game over.

Add the uncerainty over the unwind of the Europe rescue "gamechanger" as one of the more naive CNBC anchors said yesterday, and Monday is now guaranteed to be a bloodbath.

As for those saying China will gladly step in and fund a $5 trillion EFSF shortfall, they may want to read the following article from Reuters:

    Italian Economy Minister Giulio Tremonti said on Thursday that Asian investors are reluctant to buy Italian bonds because it sees they are not being bought by the European Central Bank.


    Speaking at a news conference, Tremonti also said it would be desirable for the central bank to follow the lead of the Japanese and Swiss central banks in taking expansionary steps to tackly the euro zone's crisis.


    "I note that the Bank of Japan today launched quantitative easing and the Swiss cen bank cut rates to zero, we are waiting for decisions if possible, but desirable (from the ECB)," Tremonti said.


    When you talk to Asia they say: "We don't understand what Europe is," he continued. "The second point is that they say 'if your central bank doesn't buy your bonds, why should we buy them"?

P.S. Time to unwind that Bund short we suggested yesterday. In fact, if true, it is time for a big rush to safety.

dshields's picture
Status: Platinum Member (Offline)
Joined: Oct 24 2009
Posts: 599
very interesting

This is very interesting.  This is very important.  I saw some stuff on this over the last few days and I have been keeping an eye on this.  I thought the Germans would freak on paying for the Greeks to retire at 50 when they don't get to.  They whined and made some animal noises but they went along with it, I suspect mostly because it was not a lot of money.  Italy and Spain are a different matter.  They have much larger economies and much larger debt.  I do not believe the Germans will commit economic suicide for Italy and Spain.  They are just not going to do it.  I do not want America to do it either.  We are in so much trouble ourselves right now we can't even think about such a thing.  If we go down we take the Germans with us.  There is a pretty bad situation in the eur zone.  In the end there will be default of some kind.  They have the same problem we do - in general, Europe owes more money than can be paid.  Same problem here.  Over there countries can sell debt to finance their spending but they can not print.  Here we can sell debt and print.  And, print we will.  I do not think there will be an American default until printing fails - failure being defined as printing until inflation becomes so large that we have riots in our major cities accompanied by a very serious crime wave.  When our law enforcement resources are no longer able to control the population and the military is brought in on a widespread basis, at that point the implosion will begin and default will follow shortly after that.  It will be the same in the eur zone except only the ECB can print, countries can not.


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