Forget Too Big To Fail — Germany Says Italy’s $2.5 Trillion Debt Is Too Big To Bailout

Forget Too Big To Fail — Germany Says Italy’s $2.5 Trillion Debt Is Too Big To Bailout


In The Latest Firestorm Of Bad News That Will Hit Wall Street Monday, Germany says Italy’s $2.5 Trillion Debt Is Too High To Be Saved By A Bailout.

Germany Says Italy’s Is Debt Too High To Be Saved By A Euro-bank Bailout

As Wall Street found itself in a vertical free-fall on Friday the news hit the wires that the ECB would step in to bailout Spain and Italy.

Suddenly stocks the markets turned positive and put an end to the 417 point loss the DOW saw in intraday trading.

Now the Germany is backing out of the ECB pledge to bailout Italy saying their problems are so enormous they will not be able to backstop the countries debt without crashing their won economy.

As Zerohedge reports, come Monday we are going to see a blood bath on Wall Street if this news does not change.

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

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.


Source: Zero Hedge

So come Monday here’s what traders on Wall Street will need to swallow:

  1. The U.S. had its credit rating cut from the coveted AAA status after the market closed on Friday by Standard and Poors.
  2. The U.S. credit downgrade has prompted China to step up demands for an international takeover of the US Dollar and suggest a single global currency be created to replace the U.S. dollar.
  3. The ECB, whose two largest contributors are Germany and France, will more or less be just Germany since as France is pegged to have its credit rating cut to AA just like the U.S.
  4.  The Firestorm of the Euro debt-crisis will return to the forefront of Wall Street’s woes with Germany not refusing to give Italy a Bailout.
  5. The refusal to bailout Italy may also imply a refusal to bailout Spain which will only add fuel to the fire.

Here’s on Dow Jones report referenced by the Zero Hedge article.

DJ German Govt Thinks Italy Too Big For EFSF To Save -Spiegel

FRANKFURT, Aug 06, 2011 (Dow Jones Commodities News via Comtex) –

Germany’s government thinks Italy is too big for Europe’s rescue fund to save, Der Spiegel magazine reports in a preview of an article to be published Monday.

The government doubts whether even tripling the size of the rescue fund, known as the European Financial Stability Facility, would enable it to save Italy because the country’s financing needs are so enormous, the magazine reports without naming the source of its information.

European Commission President Jose Manuel Barroso this week suggested increasing the size of the EFSF, which currently has a planned lending capacity of EUR440 billion ($622.9 billion), to help stem Europe’s worsening debt crisis.

German government finance experts believe euro-zone states couldn’t guarantee Italy’s EUR 1.8 trillion of sovereign debt without markets considering Germany to be overstretched, Der Spiegel reports.

Germany’s government therefore insists that Italy push through savings and reforms to help it exit the crisis, the magazine reports. It thinks the EFSF should only be used to rescue small and mid-size countries, the magazine reports.


Source: MenaFN News