Soros bets against Euro

[Jan Klimkowski]

Boy oh boy. This Guardian article is a classic example of MSM manipulation and framing the agenda in the interests of Power.

The headline screams:

Germany climbs down over Greece bailout demands

So, is Germany going to stop screwing the Greek people and stealing their tangible assets?

Are the European Central Bank, the IMF and the World Bank going to turn down the juice on the ElectroShock machine, and start showing some consideration for ordinary folk?

Nah!

Angela Merkel has admitted defeat over Germany's plan to force private banks to contribute funds to a new bailout package designed to rescue the Greek economy.

After a meeting with the French president, Nicolas Sarkozy, in Berlin on Thursday, the German chancellor said they had agreed that any contribution from private creditors to the package would have to be voluntary.

(snip)

Earlier this month European Union finance ministers were said to be considering a plan in which private creditors possessing Greek state bonds would be asked to cover €20bn €35bn of the costs .

As Europe's paymaster, Germany had called for Greece's private creditors to swap their bonds for new ones with maturities that are seven years longer, but encountered fierce resistance to those plans from France, the European central bank and European commission. France in particular was adamant that trying to force private creditors into any Greek deal would be dangerous for the markets.

On Thursday the head of the eurozone, Jean-Claude Juncker, said that imposing losses on investors could trigger a European version of the Lehman Brothers bank collapse a so-called "credit event". "It's a really ugly situation. The [German] idea is dangerous. It could provoke the gravest risk, that all three rating agencies declare a credit event and then there are big contagion risks for other countries," he said.

(snip)

at Thursday's press conference at the chancellery, Sarkozy heralded a "major breakthrough" with "our German friends".

As usual, a financial Apocalypse scenario is presented so that private creditors, who behaved entirely recklessly and greedily, lose nothing. Leaving the European taxpayer to bear the entire burden of propping up financial markets for a few more months.

Until Greece defaults.

Followed shortly afterwards by other European countries.

This is institutionalized fraud and looting, rubber stamped by bought and owned politicians.

The rich stealing from the poor.

With Robin Hood declared a terrorist and national security threat.

[Magda Hassan]

[Jan Klimkowski]

From AFP - the deal is off:

Germany 'dismisses Greek debt compromise plan'

(AFP) 7 hours ago

BERLIN A German compromise plan to resolve a dispute with the European Central Bank over the Greek rescue that was reported by Der Spiegel magazine is no longer on the table, a government source said Sunday.

Der Spiegel had reported ahead of its Monday issue that the German finance ministry called for a beefed-up version of Europe's temporary bailout mechanism lending to Greek banks to insure they have adequate collateral with the ECB.

It would boost the effective lending capacity of the Emergency Financial Stability Facility (EFSF) to 440 billion euros ($629 billion) and see member states double the amount of guarantees they provide the fund.

Germany's share of guarantees would climb to 246 billion euros from 123 billion euros, according to the report.

But a German official, who spoke on condition of anonymity, said that while "several options" were being debated to involve private creditors in an Athens rescue, the reported proposal was "no longer on the agenda".

The source added that the initial plan had differed from the reported proposal in "key aspects".

German officials say they seek a plan with as few "unwanted side effects" as possible.

The ECB has repeatedly warned that requiring creditors to swap existing Greek debt for new bonds with longer maturities could amount to a default, something which could send shock waves through the European and global financial systems.

German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Friday to a plan through which private bondholders could volunteer to buy new government bonds to replace ones that matured.

This "rollover" option was favoured by the ECB and France, since it avoids the risk of rating agencies declaring Athens in default.

Germany had previously called for full-scale debt restructuring but Merkel appeared to back down after the meeting with Sarkozy.

Eurozone finance ministers were to meet in Luxembourg later Sunday for talks on saving Athens from default as early as next month.

Merkel said in a separate interview released Sunday that she was upbeat about the eurozone despite the Greek crisis.

"We are already far better equipped now in Europe," Merkel told Super Illu magazine, referring to austerity measures taken by debt-laden member states.

But she said the countries sharing the euro still had to work through "significant failures" and "sins of the past" in terms of fiscal discipline.

Merkel said Greece had "achieved a great deal in the last year -- we should recognise that".

"It has cut new borrowing by five percent -- that is remarkable savings but it is not enough," she said.

The Bloomberg piece below, suggests that this may be brinkmanship to attempt to bully Greece into offering more collateral (eg Greek islands - for those who've been following this thread), more privatisation of state infrastructure (the multinational looting and plundering agenda), and further destruction of Greek wages and pensions (the globalist wage arbitrage and hatred of the welfare state agenda).

The Greek people should take the gag out of their mouths, remove the electrodes from their skulls, stand up and tell the ECB and IMF to get out of their homes and out of their country.

European governments weighed withholding half of Greece's next 12 billion-euro ($17.2 billion) aid payment, seeking to keep the country solvent while maintaining pressure on the government to slash the debt that pitched the euro area into crisis.

Euro-area finance ministers may authorize only a 6 billion- euro loan to tide Greece through bond redemptions in July, while further aid hinges on Greek budget cuts, Belgian Finance Minister Didier Reynders said.

"We will in any case try to release the necessary funds for the short term," Reynders told reporters before a meeting of euro-area finance ministers in Luxembourg tonight.

Europe's financial brinksmanship ran in parallel with Greek Prime Minister George Papandreou's effort to save his government from collapse and win parliamentary backing for spending cuts, tax increases and state-asset sales needed to keep bailout funds flowing.

Tonight's euro-area finance ministers' meeting coincided with the start of a three-day Greek parliamentary debate in Athens over a confidence vote in a new cabinet at what Papandreou called a "critical crossroads." Papandreou has 155 seats in the 300-seat parliament.

Papandreou said he planned to hold a referendum later in the year for changes to the constitution that would reform the political system in the country. The prime minister said his goal was to tackle the root causes of the country's debt and deficits that are "symptoms of the illness, not the cause."

[Jan Klimkowski]

Rats fleeing the sinking ship they commissioned and sailed:

UK banks abandon eurozone over Greek default fears

UK banks have pulled billions of pounds of funding from the eurozone as fears grow about the impact of a "Lehman-style" event connected to a Greek default

By Harry Wilson
9:30PM BST 18 Jun 2011

Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to eurozone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the eurozone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

In its interim management statement, published in April, Barclays reported a wholesale exposure to Spain of £6.4bn, compared with £7.2bn last June, while its exposure to Italy has fallen by more than £100m.

One source said it was "inevitable" that British banks would look to minimise their potential losses in the event the eurozone crisis were to get worse. "Everyone wants to ensure that they are not badly affected by the crisis," said one bank executive.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a

seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.

While the funding position of UK banks is far stronger now than it was back in 2008, the banking systems of several other major European countries, including Spain, Germany and Italy, are showing increasing signs of weakness.

Analysts at UBS have warned that eurozone banks are "particularly exposed" having not done enough since the crisis to cut their reliance on the wholesale funding markets and remain acutely sensitive to the withdrawal of liquidity from the inter-bank market.

Simon Adamson, a banks analyst at CreditSights, said it was clear many eurozone banks had been having trouble funding themselves for several months.

"Clearly there are some banks that are finding it difficult to access markets. I think this is a long term sign of the way the markets are going," he said.

Spanish banks have become the main focus of market concerns with the latest European Central Bank (ECB) figures showing that Spanish banks have been forced to increase their use of ECB lending facilities and borrowed a total of €58bn (£51bn) in May, up from €44bn in April.

"We have been amazed at the ability of Spanish banks to find ways to fund themselves, but it is clear they are running out of options," said one senior analyst at a major investment bank.

Source: Daily Telegraph.

[Danny Jarman]

Thanks for these updates Jan, please keep them coming. I too can only hope the Greek people stand up and kick these rats out...

[Jan Klimkowski]

Good.

The workers tell the bankers to stick it.

Greece Tensions Escalate As Labor Unions Call For Two Day General Strike On June 28-29 To Celebrate Austerity Vote

Submitted by Tyler Durden on 06/23/2011 11:01 -0400

The last time Greece had a full day strike was a week ago on June 15, when labor unions decided to cut another 0.15% from Greek GDP by doing absolutely nothing, and events on Syntagma square reached the highest level of violence so far in 2011. And unfortunately for the Troica, Greece seems to have realized that the best way to make sure the bailout program craters is by continuing to miss all IMF output and production targets. As a result, as Athens News reports, "according to the General Confederation of Workers of Greece (GSEE) and the civil servants' umbrella federation Adedy, the 48-hour strike is an escalation of their recent industrial action comprising 24-hour nationwide strikes in protest of the medium-term programme. A main demonstration will be held on Tuesday, June 28, at the Pedion tou Areos park in central Athens at 11am, while on Wednesday another demonstration will be held in downtown Klafthmonos Square." As a reminder June 28, is the far more critical Greece austerity vote, which unlike the vote of confidence in G-Pap, already has several PASOK members saying they will vote against it.

More:

A GSEE announcement said the central demands include rejection of the measures contained "in the mid-term programme and the memorandums 1 and 2" and "rejection of austerity, halting the climate of layoffs and rising unemployment, the imposition of respect and implementation of the collective labour agreements and halting the sell-off of public utilities and state organisations".

Adedy, in its own statement, accused the government and the troika of following a "destructive path" for the workers and society and called on civil servants to participate in the strike in order to obstruct the ratification of the medium-term programme and the new anti-popular measures.

The now open warfare between labor unions and bankers is about to get real.

[Magda Hassan]

Euro crisis deepens overnight... breaks BIG technical levels...
Italian bond yields soaringTuesday, July 12, 2011
Text Size:

From Bloomberg:

The euro weakened and the cost of insuring debt from Italy, Spain and Portugal climbed to records as the chance of a Greek default increased. European stocks tumbled the most since March while Treasurys rose.

The euro dropped to as little as $1.3837, the lowest since March 11, and was at $1.3926 at 6 a.m. in New York. Italy's 10-year bond yield rose to 6 percent for the first time since 1997. The 10-year Treasury yield fell six basis points to 2.86 percent. The Markit iTraxx SovX Western Europe Index of government credit-default swaps jumped 7 percent, while the chance of Greece defaulting in the next five years climbed to 88 percent. The Stoxx Europe 600 Index dropped 1.7 percent and futures on the Standard & Poor's 500 Index declined 1 percent.

Almost $1 trillion was wiped off the value of global equities yesterday while Italy's 10-year yield jumped more than 60 basis points in two days and the Treasury yield dropped 17 basis points. The link between sovereign risk and bank risk is potentially "explosive," and in Italy it poses an "element of fragility," European Central Bank Executive Board member Lorenzo Bini Smaghi said yesterday in Milan.

"Contagion is running amok," Bill Blain, a strategist at Newedge Group in London, wrote in a research note. "A sovereign default is now being discussed openly. We seem to have crossed that moment when chaos theory takes over and we get a price breakout into unknown territory."

The euro weakened as much as 1.5 percent against the Swiss franc, falling to a record low of 1.15533. The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced 0.5 percent, climbing for the third day. The New Zealand dollar declined against all 16 of its most-traded peers monitored by Bloomberg, sliding 1.3 percent against the U.S. currency to the lowest level since June 29.
Default Risk

The Markit iTraxx SovX WE gauge of credit-default swaps rose 20 basis points to a record 311. Contracts protecting Italian debt climbed 42 basis points to 343, Portugal increased 51 basis points to 1,187 and Spain rose 34 basis points to 380, all records, according to CMA. Swaps tied to Greece surged 150 basis points to an all-time high of 2,453.

The yield on the 10-year Spanish bond jumped 15 basis points, climbing for the seventh consecutive day, the longest run of increases since Dec. 14. The extra yield investors demand to hold the debt instead of benchmark German bunds climbed as high as 3.76 percentage points, a euro-era record. The Irish 10-year yield rose 34 basis points, also to the highest since before the euro was introduced in 1999, while the Greek 10-year yield jumped seven basis points to more than 17 percent for the third straight day.

The yield on the bund dropped seven basis points, falling for the third day, while the 10-year U.S. Treasury yield declined six basis points to 2.86 percent, with the yield sliding to the lowest this year.
Italy, Greek Sales

Italy sold 6.75 billion euros of treasury bills in its first auction since borrowing costs began soaring amid contagion from the Greek debt crisis. The Treasury in Rome said it sold the one-year bills, meeting its target, at an average yield of 3.67 percent. That compares with a yield of 2.147 percent when similar securities were last sold on June 10. Demand for the debt was 1.55 times the amount sold, compared with 1.71 times at the June auction.

Greece sold 1.625 billion euros of 182-day bills, the nation's debt agency said. Investors bid for 2.88 times the securities offered, the Public Debt Management Agency said. Belgium is scheduled to auction as much as 3 billion euros of 98- and 371-day bills.

The U.S. sells $32 billion of three-year notes today, the first of three sales totaling $66 billion.

Credit Agricole, Thomas Cook

More than 18 shares declined for every one that gained in the Stoxx 600. Barclays Plc (BARC) and Credit Agricole SA fell at least 3 percent, leading a gauge of banks to the lowest level in two years. Thomas Cook Group Plc (TCG), Europe's second-largest tour operator, plunged 27 percent after cutting its full-year profit forecast.

The drop in S&P 500 futures indicated the U.S. equities gauge will decline for a third day. Alcoa Inc. (AA) slipped 2.2 percent in European trading after the largest U.S. aluminum producer began the earnings season with profit that missed analysts' estimates.

A report today may show the U.S. trade deficit held near a four-month low in May. The gap was little changed at $44.1 billion compared with the $43.7 billion shortfall in April, according to the median of 73 economists' estimates in a Bloomberg survey.
Emerging Markets

The MSCI Emerging Markets Index retreated 1.9 percent, set for its biggest drop since May 23. The Hang Seng China Enterprises Index tumbled 3.7 percent, the most since May 2010, after Moody's Investors Service said some Chinese companies are engaging in potentially risky business practices. The Bombay Stock Exchange Sensitive Index dropped 1.8 percent as Infosys Ltd., India's second-largest software exporter, forecast sales that missed analysts' estimates.

The Markit iTraxx SOVX CEEMEA Index of credit-default swaps for emerging Europe, the Middle East and Africa jumped 14 basis points to 228, the highest level since Nov. 30, according to CMA in London.

The S&P GSCI index of 24 commodities fell 1.2 percent. Cotton dropped 4.2 percent to $1.0429 a pound, leading commodities lower. Wheat declined 2 percent to $6.2675 a bushel and nickel slipped 1.4 percent to $22,900 a metric ton.

Oil futures for August delivery fell as much as 1.7 percent to $93.55 a barrel on the New York Mercantile Exchange, dropping below the 200-day moving average for front-month prices.

[Jan Klimkowski]

Soros is now almost entirely in cash.

Waiting to make a move.

Soros Goes To 75% Cash As Fed No Longer Telegraphing Trades

Submitted by Tyler Durden on 07/19/2011 09:57 -0400

Earlier today we saw what happens to investment banks when the Fed no longer clearly telegraphs its intentions vis-a-vis which asset has to be frontran (see Goldman post earlier).

It is not just banks. In the absence of the Fed semaphore, it turns out even such "legendary" hedge funds as Soros' $25 billion Quantum are about as clueless as everyone else. Bloomberg reports that "the fund is about 75 percent in cash as it waits for better opportunities, said the people, who asked not to be identified because the firm is private."

The reason: ""I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis," Soros, 80, said in April at a conference at Bretton Woods organized by his Institute for New Economic Thinking. "The markets are inherently unstable. There is no immediate collapse, nor no immediate solution."

[Jan Klimkowski]

First, the Icelandic people told the bankers and their politicians to go fuck themselves.

Now, the Greeks have woken up.

Greece debt crisis: The 'we won't pay' anti-austerity revolt

With Greece in financial meltdown and rocked by protests we look at the growing civil disobedience movement

Angelique Chrisafis in Thessaloniki

Among the chic bars along Thessaloniki's historic waterfront, one restaurant stands out. "We want our money!" reads a banner dangling from the terrace of an American-themed diner and grill. Inside, 12 staff have changed the locks, are serving cans of supermarket beer to supporters and taking it in turns to sleep nights on the restaurant floor in protest at months of unpaid wages and the restaurant's sudden closure. This is the new symbol of Greece's spiralling debt crisis: a waiters' squat.

Margarita Koutalaki, 37, a softly spoken waitress, divorced with an 11-year-old daughter, worked here part-time for eight years, earning about €6.50 (£5.70) an hour. Now she is taking turns to sleep on an inflatable mattress in an upstairs room, guarding the squat, while her parents babysit her child.

"I'm owed about €3,000 in unpaid wages," she says, warning her plight is shared by legions of workers all over Greece who are waiting for months for outstanding pay from struggling business owners. "At first we were told we'd be paid the following month, then the pay stopped completely and we were told by phone that the restaurant was closing. We're still working, we're keeping the place going, providing food and drinks to our supporters. We've got more clients than before. This protest is all we can do. It comes naturally."

The waiters serve cheap drinks and cut-price dinners to a new clientele of leftists and protesters from the four-month-old "indignants" movement, who would previously never have set foot in this bastion of imperialism, the Greek franchise of US giant Applebee's. A banner in English tempts tourists with cheap souvlaki and meatballs "in support of the workers".

It is one month since Greece was paralysed by a general strike over harsh austerity measures, with mass street demonstrations and running battles between police and protesters in Syntagma Square, Athens.

Greeks are more distrustful than ever of their political class and its ability to lead them out of the crippling financial crisis. Polls show growing contempt for all parties and the discredited political system. Unemployment is at a record high of 16% far higher for young people. Those lucky enough to still have a job have suffered dramatic salary cuts and tax increases.

Doctors and nurses recently staged walkouts over hospital cuts. Taxi drivers have hobbled Greece with strikes in the past two weeks, protesting at government plans to open up the industry. Their tactics included blocking ports and opening the Acropolis ticket office to let tourists in free.

Crucially, Greece's long-running "civil disobedience" movement, where ordinary citizens refuse to pay for anything from road tolls and bus tickets to extra doctors' charges, has not fizzled out in the summer holidays. The "We Won't Pay" offensive is championed as the purest form of "people's power". Organisers warn it could gain renewed force in September as the government launches a new round of financial restraint.

On the main Athens-Thessaloniki road, as drivers file back into Thessaloniki from a Sunday at the beach, a crowd of civilians in fluorescent orange safety bibs stand guard at the barriers to the main road toll into Greece's second city. Their jackets are emblazoned with "Total Disobedience". They push aside the red-and-white barriers and wave drivers through without paying the €2.80 toll. Banners read: "We won't pay", and "We won't give money to foreign bankers". Drivers gratefully drive through, some giving the thumbs up.

"We'll see a resurgence of civil disobedience in the autumn," says Nikos Noulas, a civil engineer from Thessaloniki, in a city centre cafe as he rolls out a series of posters championing the refusal to pay.

Living a 40-minute drive from the city centre, he commutes by motorbike for what scarce work remains, but avoids paying for bus tickets or tolls. He also stages supermarket ambushes, handing shoppers big protest stickers to place on any goods they consider ludicrously expensive. Milk is a favourite. Noulas and his group fill trolleys with goods and ask the manager for a 30% discount. When refused, they abandon the full trolleys at the till.

He acknowledges that a recent police clampdown has made things harder: "If a police officer is watching, there's little choice but to pay a road toll." But he says breaking the law by not paying small tolls or bus fares is far less serious than corrupt politicians and cartels which, he claims, ran Greece for decades with impunity. "This has taught us that the Greek people can resist. It has ignited public sentiment," he says.

The road-toll protest movement began more than two years ago outside Athens to counter what is seen as an extortionate and corrupt road toll system, with drivers expected to pay for stretches of road that have yet to be built. Some residents face paying more than €1,500 a year in tolls to get around their own neighbourhoods.

By the start of this year, the movement was flourishing and included refusals to pay for Athens metro tickets, with protesters covering ticket machines with plastic bags, as well as a long-running bus fare boycott in Thessaloniki after price rises by state-subsidised private firms. Others refuse to pay their TV licences.

Leftwing parties became involved, boosting the campaign's visibility. By March, more than half of the Greek population supported the "We Won't Pay" notion. The government heaped criticism on what it deemed an irresponsible "freeloader" mentality, warning that the non-payers would bring the country into disrepute and were starving the state of vital revenue from transport services. New laws were brought in on ticket evasion and police cracked down.

George Bakagiannis, an IT manager from the Athens area, has avoided paying road tolls for two years, simply stepping out of his car and pushing open the barrier at toll booths. His group stages toll-booth ambushes for two to three hours several times a week, waving drivers through without charge.

He has branched out into demonstrations against the €5 fee for doctors' consultations. He says: "We go to the hospital and close the cashier's room, telling people, 'Don't pay, we're here.' This isn't our crisis, it's the government's crisis. They steal our money; they're stealing our lives. Now they want us to believe even our savings aren't safe in the bank. This movement will grow in this autumn because things are so bad now that people genuinely don't have the money to pay."

The social commentator and writer, Nikos Dimou, says: "It's the beginning of a divorce between the Greeks and their politicians. That's what all these movements have in common: they are all about a loathing and abhorring of the political class."

In Thessaloniki, Greece's second city, feelings run high. The "indignants" had their tents forcibly cleared from Athens' Syntagma Square this weekend, but Thessaloniki's ancient waterfront fortification, the White Tower, is still surrounded by protest tents and draped in banners reading "For sale" and "Not for sale."

Northern Greece has been badly hit by the crisis. Businesses began closing long before the full force of the financial meltdown. So many people are too poor to regularly use their cars and so many businesses have ground to a halt that Thessaloniki's municipality has claimed a vast improvement in the air quality of the notoriously congested city. On 10 September, when the Greek prime minister George Papandreou appears at Thessaloniki's famous international fair to unveil his new economic measures, he will be met by demonstrations.

Thessaloniki protesters are using flash-mobbing, where crowds turn up unexpectedly to picket banks and public buildings. The latest target was the German consulate, where dozens of demonstrators chanted and spray-painted the pavement, demanding the European Union did more for Greece as plainclothes police looked on.

At the demo on 20 July, Barbara, 30, a Greek language teacher, who did not want to give her surname, said she was serving coffee in a bar for €30 per nine-hour shift on the black economy. She lives with her father, a pensioner, and mother, a shop owner who is deeply in debt.

"No one is hiring, I can't find teaching work or private lessons. There's no hope for a decent life. Half the people I know are unemployed; the other half are on the edge of it. Anyone who can afford to go abroad is leaving," she says.

At the White Tower, Antonis Gazakis, a language and history teacher, says he is struck by how novices are now joining the protests, from myriad political standpoints, left to right, many with no links to parties or any history of protest. All were throwing themselves into debating how to change what they see as a corrupt political and parliamentary system. "Political history is being made in Greece," he says. "That's why I'm staying around this summer. The last time people went out into a square demanding constitutional change like this was 1909. This is a golden opportunity, a paradigm shift. Greece has woken up."

[Jan Klimkowski]

Will German taxpayers agree to backstop the Euro?

Nein.

The Euro is a dead man walking....

Explaining How The Just Announced ECB Market Rescue Pledged 133% Of German GDP To Cover All Of Europe's Bad Debt

Submitted by Tyler Durden on 08/05/2011 13:06 -0400

Two weeks after Zero Hedge readers were informed about it, slowly the sell side is coming to the realization that not only will the EFSF have to be expanded (that much was known), but that Germany, and specifically the outright economy, will be on the hook by an unprecedented amount of money.

And expanded it will have to be: not by two, not by three, but by a cool four times, to a unbelievable €3.5 trillion which according to Daiwa's Head of Economic Research, Grant Lewis, is an act which will be necessary to convince financial markets of euro area resolve to save Italy and Spain.

Says Lewis: "France, Germany contribution to EFSF's capital would increase to 80% if Spain, Italy had to drop out of guarantee structure. France, German contingent liabilities would be > 50% of GDP if EFSF expanded; added to France, Germany current debt may trigger downgrades to both countries."

Yes... and no. As we explained when we referred to a far more accurate and complete report by Bernstein, merely a €1.5 trillion expansion in the EFSF, would mean that Germany is on the hook to the tune of €790 billion or 32% of German GDP. If France is downgraded, Germany essentially becomes the sole backstopper of the entire Eurozone, to the tune of €1.4 trillion or 56% of its GDP.

Now let's assume Daiwa is correct, and the full amount under the EFSF has to increase to €3.5 trillion. That means that Germany "contin[g]ent liabilities", in the worst case scenario where France again gets downgraded, and it likely will eventually, would surge to about €3.3 trillion, or an insane 133% of German GDP!

Now let's put today's events in perspective.

Basically what just happened an hour ago, is that the ECB gave a green light to use the SMP program to buy Italian and Spanish bonds: the two countries which recently put themselves into a self-imposed capital markets exile as we reported earlier. The problem is that the SMP's unsterilized purchasing capacity is de-minimis and it is merely a stopgap until the sterilized EFSF is enacted in its final form. The question is precisely what this final form will be: will it be €1.5 or €3.5 trillion. Nobody knows yet which is why Rehn refused to answer the question twice already today.

Either way, let's assume EFSF gets clearance. At that point the SMP gets deactivated, and EFSF takes over.

And here is where Germans get angry, because explicitly they end up backstopping everyone in europe! And the cost to them becomes 133% of their entire economy in a worst case scenario, which of course in this centrally planned world, is now guaranteed.

So the ball is now basically in Germany's court: will the German export sector be ok with leaving the country on the hook to a complete implosion once the final European house of cards implodes, or, will German practically once again take over, and tell the ECB, the bureaucrats and every other insolvent European country to go shove it, in the process bringing back the D-Mark and returning to a life of quiet contentment without a customs, cultural or monetary union.

Oddly enough, our money is on the latter.

PS. In the meantime, short Bunds (or to borrow a Gartmanism, go long gold in Bund terms) ahead of the market's realization that peak risk transfer from the periphery to the core is now in process.

PPS. A fully funded EFSF will need to issue €3.5 trillion, or $5 trillion in debt. Repeat: $5 TRILLION.