The EFSF Deal is a Joke: Europe is Broke

One of the items few investors seem to be focusing on is the fact that while the system is awash with liquidity, there is very little capital available. Indeed, the great irony of central bank policies in the post-2008 era is that despite flooding the system with cheap easy money, they’ve not actually done anything to lower leverage or raise capital.

Case in point, the European Financial Stability Facility (EFSF) which is supposed to be the ultimate backstop for the European banking system, is in fact nothing more than a super-leveraged investment vehicle backstopped by bankrupt nations.

In plain terms, certain less insolvent nations (Germany and France) are supposed to bailout more insolvent nations such as Greece and Ireland. Common sense tells us this can’t possibly work.

So do the markets.

EFSF bond may see weak demand

Bankers have warned that the eurozone rescue fund might face lacklustre demand this week for a planned bond issue designed to finance Ireland’s bail-out.

The offering will provide a key test of investor sentiment after the announcement last week of new plans to tackle the eurozone debt crisis.

The bond from the European financial stability facility will seek to raise €3bn ($4bn) and will be in 10-year bonds rather than a 15-year maturity because of worries over demand, say bankers. A 10-year bond is more likely to attract interest from Asian central banks than a longer maturity.

Bankers familiar with the issue said the EFSF had been considering a €5bn issue. However, the EFSF has denied this, saying it had always sought a €3bn issue.


EFSF Delays 3 Billion-Euro Bond Sale

Europe’s bailout fund is delaying a 3 billion-euro ($4.1 billion) bond sale after Greek Prime Minister George Papandreou’s request for a referendum on the rescue pact for his country roiled markets.

The European Financial Stability Facility is putting off the 10-year issue “due to market conditions,” according to Luxembourg-based spokesman Christof Roche. The fund may wait for the outcome of the Nov. 3-4 Group of 20 summit in Cannes, France before selling the bonds, according to a person with knowledge of the matter.


So the EFSF is supposedly going to raise 1 trillion Euros… in an environment in which it struggles to even stage a five billion Euro bond offering?  Give me a break.

Again, while the system is flooded with liquidity, actual capital that can be put to use is virtually non-existent. The entire financial system is built up on leverage and easy credit, NOT capital.

This is why the bailouts cannot work. You cannot solve a leverage problem with more cheap debt. Just look at Greece. That whole mess started in January 2010… two bailouts and a number of write-downs later the country is still broke.

And somehow this policy is going to work for other countries such as Italy or Spain? Give me a break. The Euro in its current form is finished. The credit markets are already pricing in more Greek defaults. And Italy’s now lurching towards its own default.

Ignore stocks, they’re ALWAYS the last to “get it.” The credit markets are jamming up just like they did in 2008. The banking system is flashing all the same signals as well.

So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding.

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Best Regards,

Graham Summers







Posted by Phoenix Capital Research