The euro zone region's inability to fund future bailouts will probably force some of the 16 euro nations, including Ireland, to abandon the currency within five years, the head of the world's largest bond management firm has warned. Mohamed A El-Erian, chief executive of investment management firm Pacific Investment Management Company (Pimco), told CNBC that Spain and Portugal are likely follow Ireland in drawing on the European Union's bailout fund. Mr El-Erian, whose company has more than $1 trillion under management said the EU has not taken control of the crisis. "The first rule of crisis management hasn't been met by the Europeans, and that is to get ahead of the crisis, be seen as proactive rather than reactive," Mr El-Erian told CNBC. "As long as they're being seen as reactive we're going to have a slow-motion wreck going on on in Europe. We're going to wake up and it's going to be a new country we're talking about." Mr El-Erian warned that continuing solvency problems would undermine any hopes of recovery. "Unless we see more than just liquidity support, unless we see something that deals with the balance sheets, expect this contagion to go up," he said. http://www.irishtimes.com/newspaper/breaking/2010/1205/breaking6.html?via=mr
I can guarantee that Pimco will make money off it in a way that the general investing public cannot. "To be fair, other European countries like Germany, Austria and France, which are in much better financial shape, are guaranteeing the fund as well. Scott Mather, a managing director at the huge bond investor Pimco, says he is considering lending money to the stabilization fund, despite the fact that Pimco is not currently investing in Irish government bonds." http://www.vpr.net/npr/131762548/
I have read that in case of debt restructuring, public capital could be senior to private capital. So the stabilization fund gets his money back before everyone else. I don't understand how Pimco's money could be considered public money.
He means he's going to buy the EFSF bonds. In the event of a default, EFSF is supposedly more senior than other creditors, so he thinks he's more likely to get his money back.
Perhaps an EU breakup trade for a German SPV/citizen...set up periphery loan, deposit into Germany wrapped in German entity. Use deposited Euros as visible collateral for periphery loan. Want it visible, fully secured as it eases mind of counterparty (Irish/Greek bank etc), thus lowering spread. Wait for Germany to vacate EU. Maybe 50-75bps annual cost with a 15-30% upside, hang on to trade for a few yrs. Institutional economy of scale to keep deposit side cost down, thus no soup for retail joe. It would seem plausible the pro-EMU breakup crowd will be operating along these lines.
The black hole that took HRE down was an originally Irish entity called DEPFA, which operated roughly along the lines you described.