EZONE DEBT GUARANTORS: S&P’s EFSF downgrade confirms that Germany stands alone

Within the last two hours, S&P has downgraded the eurozone’s EFSF mechanism – a holding fund before the ESM goes live….if it ever does.

This isn’t massive news on the face of it; but as so often with ‘news’, get down past the first few paragraphs and the real significance is there. This extract from S&P’s release is telling….my italics:

‘We have concluded that credit enhancements sufficient to offset what we view as the reduced creditworthiness of European Financial Stability Facility (EFSF) guarantors are not likely to be forthcoming….The negative outlook on the long-term rating on the EFSF mirrors the negative outlooks of France and Austria….’

There are also hints in the verdict that, purely on the basis of being sucked into contributing to further hopeless bailouts, even Germany could find itself downgraded. This is turn would downgrade the ESM…andonadnonandonandon….the vicious circle continues.

One wonders how this afternoon’s Bundestag vote might have gone in the knowledge of this damning outlook. Germany is being told by S&P that it can no longer depend on its ally France. In the context of G20 pressure for Europe to build its own Greek contagion firewall, the options for Berlin are even more constrained.

But then, the Chancellery knew that anyway.

22 thoughts on “EZONE DEBT GUARANTORS: S&P’s EFSF downgrade confirms that Germany stands alone

  1. If even on negative credit watch the effect is the same. There is so much debt around that most bonds and other financial instruments cannot be carefully measured so as to put out recommendations.


  2. After the Bundestag vote, Sky quote Merkel saying “this will guarantee 100% that the [Greek] bailout will work.”

    You couldn’t make this up!


  3. JW, I have just heard the rumour that U.S. Treasury Secretary Timothy Geithner Arrested, Questioned And Released on 24 Feb.

    Have you heard anything? Or is it another hoax? I cannot find any good confirmation, just rumours.


  4. Draghi at the ECB is alleged to have a conflict of interest:

    “…Draghi stated in writing that there were no relevant personal factors to be taken into account in considering his nomination [to G30] in June 2011. It is misleading because it fails to disclose a conflict of interest […]. Specifically, his son has been working for some years as an interest rate trader at Morgan Stanley [..]. The code of conduct of the ECB warns against “potential advantage for [the] families [of the Governing Council]”. It’s a real risk. In January 2012 the president of the Swiss National Bank was forced to resign after it was found his wife traded on insider knowledge

    (my emphasis)


  5. that’s why he was allowed into position in the first place. that makes him controllable and disposable. it’s much simpler than arranging hotel rapes…


  6. This content of a zerohedge link found via DMN – the last paragraph of which sums up the situation for Germany concisely:


    “From Mark J. Grant author of “Out of the Box and into Wall Street”

    One More Greek Tragedy

    “The end crowns all, and that old common arbitrator, Time, will one day end it.”
    -William Shakespeare, Troilus and Cressida

    We are approaching an endgame, March 20 will mark the spot on your calendar, and while it is certainly not “the” endgame; it is one of the continuum. During the next twenty-three days we are going to get some answers to a number of questions that have been unanswered and a number of verdicts that will set the stage for the performance. In the end I suspect there is going to be a decision made by Germany whether to fund the Greek bond payment independently of everything else or just to let them go and destroy the grand myth. Germany will probably end up playing chicken with itself in an exceedingly bizarre pact with the Devil. In the first instance there is more and more evidence that the PSI will not go as hoped as many institutional investors do not take the bait and are not willing to roll-over for the good of Greece and Europe. Each time I hear some European politician speak about the obligations of money managers I am reminded that these people live far off the beaten path of reality. Somehow the “responsibility to shareholders,” so prevalent in other conversations, finds itself left out in the woodshed when speaking about the Greek bailout. The boys speak from both sides of their mouths which is a common trick amongst these rascals and one that I have never attempted though they seem to have it down pat. Forbearance and fealty depend upon the subject at hand and Greece demands one covenant while corporate jurisprudence demands another. The often intoned phrase for bondholders, that this is the one and only time we will get spanked, rings with all of the truth of the Trojans proclaiming that they “Come in peace.” A horse tale history has taught us.

    Aside from everything else the trick pony may well turn on a PSI deal that does not get accomplished and no time left to fix it. Consider the implications of a failed deal where Greece is over one hundred billion short and no time available to head back to all of the Parliaments to try to increase the bailout one more time. Realization may well turn to European panic and wails of desperation heard long into the night. I have discussed the “Collective Action Clause” and the CDS trigger or not but what if the transaction just does not get done as 26% or more of the bond holders choose not to participate for whatever reasons. This scenario is looking increasingly likely and should be seriously contemplated now.

    April 22 and “Vive La Difference”

    Here we have the first French election with May 6 behind it for the run-off if needed. The man who would be Napoleon will end up swinging from the gates at the Bastille it appears. Sarkozy is not Bonaparte and the present ruler is about to be forced from the palace. To put it in perspective, what is about to occur is exactly like the American elections if the majority and the Presidency went to the Republicans; a total reversal in social policy and direction. There may be some wrong or right to it but I do not speak to those issues this morning but rather a recognition that reversal is coming. Besides the fallout for the French banks, evil-doers in Hollande’s assessment, the clawing and scratching between Germany and France is about to get ferocious. This will then have a marked impact on the direction of the European Union with Germany wanting to go right as the French turn to the left. I continue to think that one of the best shorts is France currently; bonds, equities, brie futures, the Chanel #5 June contracts, Victor Hugo memorabilia, Marie Antoinette tarts, room nights at the George V and Hermes scarves July contracts.

    “The German Dilemma

    With an economy of just $3.2Tn versus the United States $14.3Tn Germany is trying to prop up a Eurozone that is more than one trillion dollars bigger than America. They just do not have the resources for the task they are undertaking and I predict serious consequences, eventually, from their efforts. Germany is “best of class” and will be the last to go but they cannot evade the European recession in the end and I think it is only a matter of time and unfortunate decisions before the austerity demands made on so many will wind their way back home to those who made the demands. They used a timeline that was much too short for the job at hand and payment will eventually be forced upon them. They obviously get the joke where Eurobonds and other ploys of this nature average the economies of Europe and the standards of living over some period of time so that Germany, in the end, will suffer most as they have the furthest to fall. They have approached the G-20, China, the emerging market countries and all polite responses to the side; the results have been about zip. The Germans are running out of both time and money and Franz is squirming in the beer hall.”

    The contributor also gave this comment, which is pretty much representative for all comments made:

    “Actually, it’s all too much to bear. We are being betrayed and sold out by our own people. The euro does not serve peace between nations – the euro splits everyone and everything! Our political jerks don’t want to or simply cannot understand that.

    Despite ample warnings from economists they have ridden us into a disaster, one which could hardly be any greater.”

    Plus a link to an outspoken article by Wilhelm Hankel – to be posted as soon as I’ve translated it.


  7. Geithner: “Greece, ain’t that where them Zeno’s paradoxes come from?”

    Aide: “What’s a paradox, sir?”

    Geithner: “It’s the same as a pair of geese son, but it can swim.”


  8. It’s a hoax. Yesterday I read a report of US air force bombing Syria. There is a lot of nonsense out there probably because there is a lot of fear.


  9. Something that reads like a half-way sensible solution, even if it does fly in the face of current EU political dogma:

    “Euro-critic Hankel: The battle for the Euro is lost

    Wilhelm Hankel is one of the most high-profile critics of the Euro. In a Euro-interview Hankel warns of stagflation in the euro-zone and argues for the liquidation of the monetary union.

    Euro: Herr Hankel, how would you assess the rescue attempts for the euro?
    Wilhelm Hankel: If Frau Merkel continues like this, Europe will sink into stagflation. In the rescuer countries there will be more inflation, wíth a devastating deflation in the countries being saved. This dilemma cannot be solved within a monetary union. Not even with a fiscal pact. Either the euro zone disbands uncontrolled in the course of this or Frau Merkel still finds the alternative, which she has thus far excluded.

    Euro: The exit of Greece?
    Hankel: No, there are many other Greeces, potentially up to twelve, including France and Belgium. The risk of an uncontrolled ruin of the euro zone remains.

    Euro: What do you recommend instead?
    Hankel: The battle for the Euro is lost. The only sensible solution is its orderly liquidation, the liquidation of the monetary union. This will cause the least costs and there are both historical and current models for it. On the Balkans, in Albania for instance, we have a national currency and the euro as a parallel currency. The market adjusts the exchange rates. Even after the First World War, after the dissolution of the Habsburg Empire, national currencies were introduced and the old crown currency continued for a while.

    Euro: You argue for the re-introduction of D-mark, franc and lira ?
    Hankel: Yes, more precisely, for the return to the European Monetary System, which in reality was an exchange rate system. The euro would not be an abstract unit of account as was the ECU, but parallel circulating money. In addition, each country will have its own currency with a flexible rate of exchange to the euro.

    Euro: What would that deliver?
    Hankel: Deeply indebted countries could devalue strongly and thus regain their competitive ability and solvency. Instead of money from state funds, they could again borrow money from the markets. This is also the best remedy against future debt excesses. If these countries continue their old policies and there is a risk of devaluation, they will get no money from abroad. No investor risks losing some of his capital through depreciation.

    Euro: But the D-mark will certainly enhance its value. German companies will fear that their exports could suffer.
    Hankel: This hubbub was there before every D-Mark appreciation – and then there was silence. German exports have never suffered through any D-Mark revaluation, they have actually increased. The explanation is quite simple, then and now: in the German export assortment up to 50 percent of it is imported inputs, raw materials, energy, ready-made parts. These become cheaper after a revaluation. Ergo, a revaluation would tend to strengthen the competitiveness of German industry rather than lead to large losses. The big winner would be the German finance minister: he could pay off his euro debts more cheaply with the new revalued D-Mark.”



  10. Well done and many thanks for that @VJ. It’s hugely interesting to read what our German friends are saying. This final comment kinda sum sit up:

    We are being betrayed and sold out by our own people. The euro does not serve peace between nations – the euro splits everyone and everything! Our political jerks don’t want to or simply cannot understand that.

    The EU/EZ is heading towards a major reset methinks…


  11. More common sense. Hankel will obviously be aware of how Brazil managed their currency during the hyperinflation era where they used the USD running in parallel to their own wobbly currency notes, especially for pricing exports and major business transactions. This is what ex-EZ members will have to do until volatility subsides and their new currencies can stand up on their own.


  12. People can cut and splice the EU/EZ anyway they want.
    But the unavoidable fact is that the EU and EZ have created the very thing that the elected/unelected elites and advocates of Europe claim they were designed to prevent: growing tension between European nations. One only has to see how many Greeks now view Germany (rightly or wrongly) to spot this. The only sane path for Europe is a breakup (or major scaling down) of the EU – including sending the crats home, a return to national currencies and a return to pan-Euro free trade.


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