There is now no way the eurozone can avoid going down the toilet

You have to worry when all the EU sovereign States most in trouble have the banks most in need of recapitalisation. Thus, the three biggest needies are Spain, Italy and Germany. (Greece’s banks are already being propped up by EU money anyway)

Hang about…..Germany? Yes, moralistic, harpy Germany: and half of it is required for Commerzbank. However, this isn’t the end of the story – although to read some of the press, you’d think it was. The key thing is the quotient between the degree of buffer banks have, and what their exposure to ClubMed debt is. For example, France weighs in at a mere 7.3bn of bank recap, but its exposure to Greece and Italy is horrendous.

I recently posted about ECB bond-buying levels, adding ‘that we know about’. Today, Open Europe confirms that Mario Draghi’s central bank is already heavily intervening in markets far more than we’d been led to believe. ‘Through its government bond buying and liquidity provision to banks,’ says Open Europe, ‘we estimate that the ECB’s exposure to weaker eurozone economies has now reached €705bn, up from €444bn in early summer – an increase of over 50% in only six months, raising fresh questions about its credibility, independence and possible losses it may face in the case of future sovereign defaults’. Yes indeed….but most of that must have been initiated by Tricky Trichet. Old Hatchet Face tried to come across as Mr Parsimony – but the truth is that his fear of being asked to do more was of even his own bank falling sideways.

Meanwhile, Bazooka ammo – even via the IMF – is still proving to be a thing more rare than American financial aid. Of the non-European nations asked for help so far since China, Japan and Brazil said no, Canada has just replied rather abruptly with a ‘sort yourself out’ rebuff. George Osborne has evoked more outrage about la perfide Albion for refusing to stump up the 30 billion he was under absolutely no obligation to offer in the first place. And the US, as always, will not be putting a hand in Uncle Sam’s pocket, on the grounds that they never quite know what may be in there. As non-eurozone countries were expected to raise ‘at least’ 50 bn euros, this is quite a shortfall.

Within the Ezone itself, Germany’s Bundesbank said last week it would only contribute if non-euro zone and non-European countries did too,  so that effectively brings us back to, erm, nothing.

I’m not quite sure if anyone else is keeping a running score on all this, but by my calculation, what was going to be a leveraged 440bn euro EFSF turning into 1.3 trillion via Spiv investments, plus an additional 2o0 billion from the IMF (a grand total of 1.5trillion euros) now looks more like 600 billion….falling short by a mere 60%. Or, as a French credit manager put it this afternoon, “Nowhere near enough”.

So in brief, the heads-up is this: thanks to half-bankrupting itself  to buy junk bonds, the ECB doesn’t have enough for proper bank bailouts; all the banks that most need buffers have the smallest ones; and the EU itself has just two euros out of each five required to stop multiple defaults.

Would you volunteer to be the guarantor for this heap of crap? No, me neither.