No Eurobonds = Return to punt?

Amberman

OK, my last post on this subject was a bit short...apologies to mods.

Basically, I am trying to find some way forward for the Euro as a viable currency if, as looks increasingly likely judging by the CDS spreads, one or more large Eurozone banks blow up (SocGen?) which could mean, if the same bailout playbook is followed, France losing it's AAA rating, leaving Germany as the only viable backstop of an expanded rescue fund....which brings the nightmare figure in Zerohedges article into play for Germany...133% of GDP to keep the Euro viable.

**************************

Full Zerohedge article click here...

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!

*****************************

What are the odds of a banking crisis? Well, Reggie Middleton predicted the last one before anyone else. This video is well worth watching, (if only to see how hilariously optimistic the EU's forecasters are). Short version, Reggie says a European banking collapse is imminent.

and worse news...if Zerohedge is (as usual) ahead of the curve and the German backstop as outlined above isn't going to happen...my question is...

...what happens?

Are these the only options?

1. Germany crucifies herself for us and the Euro is saved.
2. The member states all call it quits and go back to their own currencies
3. 2 Europes develop...a strong one and a weak one.

Thoughts?

Amberman

Judging by last weeks German constitutional court ruling and the growing and increasingly open opposition to #1 from other Sovereign states, I think we can now on balance rule #1 out.

Look out below! This suckers going down.