It seems that the European bailout buck will stop with Portugal for one simple reason: when Europe created the EFSF it did not think it would need to serially bail out everyone; now the EFSF does not have enough money to cover a bailout of Spain. From Dow Jones: "The European emergency fund, promoted as having the financial firepower to douse a financial crisis in the euro zone, may not even have enough money to cover a bailout of Spain. "[The fund] will be very close to the line, it will be precarious and it won't leave anything for anybody else," said Whitney Debevoise, a sovereign-debt lawyer with Arnold Porter and former World Bank executive director." Of course, if and when Spain is bailed out, other bail outs will be irrelevant, as at that point the vigilantes will focus squarely on Germany. At that moment, nothing less than a complete dissolution of the currency union and an unmitigated monetization ala Weimar will save what is left of the productive powers remaining in Europe.

From Dow Jones:

The EU has EUR440 billion committed from member countries to its European Financial Stability Facility, the fund being used to extend bailout aid to Ireland. Requirements by European officials that the bailout bonds have a triple-A rating lowers the EU's lending capability to EUR250 billion, in addition to EUR60 billion available in the EU budget. The International Monetary Fund has said it will lend an additional 50% to European countries.



If Ireland requires between EUR80 billion and EUR100 billion--as officials indicate--and Portugal needs an estimated EUR50 billion to cover its sovereign debt refinancing needs, that barely leaves enough to cover Spain's sovereign debt rollover requirements over the next three years. Greece's EUR110 billion package was arranged before the bailout fund was set up.



The problem, said an IMF official, is that Portugal and Spain may also ultimately need to fund banks' recapitalization or wholesale liabilities, and the European bailout mechanism just doesn't have the capacity to cover those financing gaps.



"The [bailout fund] as it is currently structured does not have the firepower without a much, much larger contribution from the IMF," said Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics. "But how much does the IMF as a global institution want to be exposed to Europe as a region?," he said.



Although only Ireland has so far requested aid from the joint European Union-International Monetary Fund program, fears that Portugal and Spain may need external assistance have already spiked the cost of borrowing in both countries' sovereign and banking debt markets as perceived risks rise.



Both the EU and the IMF declined to comment for this article.

The last is not too surprising: an admission that the EMU is over due to lack of foresight to add one extra zero may not be to most politically correct thing to do. But luckily, there is always the IMF, which courtesy of its recent amendment now has infinite capital. And if Europe needs bailing out that means Europe won't be paying for that particular multi-trillion rescue. Which leaves guess who. Hopefully, Bernanke's foolproof plan of ultimately flooding the world with US dollars is starting to be perceived by everyone.

So what does happne when domestic sources of funds are exhausted? Nothing pretty:

Alternative funding could come through bilateral loans from countries heavily exposed to Spain or extra International Monetary Fund support. But tapping out the EU's emergency financing mechanism would leave nothing for other countries and may force Brussels to try to boost the funding cap to save the euro zone and leave Europe stretched critically thin.



Aside from direct bilateral loans, such as those being considered for Ireland from the U.K., Sweden and Denmark, Debevoise says EU countries may have to boost the cap on their bailout program, a politically difficult task for a raft of reasons.



"At that point, it will be to save Europe, saying, 'this is your political duty,'" he said.

Notice how they don't call it patriotic... Because don't forget that the EMU has been around for a decade: it a modestly difficult to engender patriotic affiliation with a monetary union, whose sole purpose just like the CNYUSD peg by the way is to keep the German "currency" undervalued, which everyone hates.

The endgame? Unbridled printing:

"The willingness of the political sector to overcome what I believe will ultimately be proven to be an irrational liquidity squeeze by the market cannot be underestimated," he said.



That commitment to the euro zone is so strong, Kirkegaard says, "The European Central Bank would purchase outright with printed money Spanish debt before the Spanish government was forced into a disorderly default."

....which is one thing Bernanke will not allow. And should there be a liquidity crunch, every single European bank will need dollars. Many trillions of dollars. Which will be unavailable in the open market, leaving just the FRBNY's FX swap as a viable option. Of course, should Europe pursue a monetary policy in true independent isolation, and should the tsunami of dollar buying actually occur, the resulting historic surge in the USD may just end up being the most poetic end to the currency bottom...

As for those who still may be confused by how the various bailout mechanisms in Europe operate, we present to you this useful infographic by the Guardian.