The bad news: There's only four of us left: the Netherlands, Germany, Finland and Luxembourg. Even more bad news: This may costs us sad little Lowlanders a bit more then was anticipated.
There are, however, broader implications. France is one of the major contributors to the European Financial Stability Facility (ESFS) and if as a result of its downgrading this fund also takes a hit, its lending power will be substantially cut.In the mean time Greece is facing another major crisis. Remember that 'voluntary' 50% haircut that holders of Greek bonds would take? A handful of hedge funds, having amassed a big chunk of Greek debt at bargain prices, is not playing ball.
The EFSF's €780 billion lending capacity, says Reuters is based on guarantees from eurozone governments. Even with six of the 17 contributor governments AAA-rated, all member states still had to provide over-guarantees to ensure that the fund remained AAA rated.
But, with only four holding on to their triple-A status, the overall impact will be to suck power from the EFSF and make it that much harder to scale up the resources that are already committed to the facility – and the borrowing more expensive.
These last days saw negotiations on Greece’s debt restructuring break down as the hedge funds walked out. The Slog has the news and relevant links to explain the situation. Apparently they are holding out for a coercive Greek default. This would trigger a 'credit event', which means that the debt insurance (credit default swaps) these hedgies hold would have to be paid out. K-ching for the hedgies, the end of the eurozone (at the very least: in its present form) for us, banking crisis for France, renewed debt crises for Italy and Spain and all manner of other economic trouble. As The Slog asks:
How on earth did we get to the stage where half a dozen MoUs have this much power? Where were the watchdogs to ensure that Hedge Funds couldn’t manoeuvre themselves into profiting from madness? When will the blind, neocon globalists finally face facts, and see that the system not only stinks – it’s nihilistically destructive?And if you're asking why all this doesnt lead to a EUnion break up, why the Merkozy have not kicked Greece out a year ago, the Slog has an answer to that as well: The Merkozy need the EUnion to pay for Germany's and France's insane state pension obligations.
State-funded pension obligations in France and Germany are three times the gdp of those two countries. Together they total 13.9 trillion euros, VERY NEARLY HALF of the pension bills of the 19 nation States studied.As the Slog notes, maybe here we have, revealed in its full, awful, decaying obscenity, the truth about why the EU cannot be allowed to end, and why its founders would rather eat glass shards than give up on it: for in its current existence, the European Union is a cash-cow based on honouring debt so that Franco-German pensions can continue to be meaningful. Welch on the debts, and the entire construct of a whole continent’s retirement plan ceases to be. But nearly half of that plan involves the inflated retirement expectations of just two countries.
There is a house of cards. Cards with a blue back, with yellow stars on it. And it is falling. I think the applicable term is: creative destruction.