More Greek debt passes to the European Central Bank

Chemical companies, Consumer demand, Economic growth, Financial Events

BIS loans Oct11.pngStock markets soared after the eurozone meeting this week. But the head of the German central bank warnedThe envisaged leverage instruments are similar to those which were among the origins of the crisis, because they temporarily masked the risks.”

It is clearly far too early to assume that EU leaders have really decided to take the difficult decisons necessary to restore long-term financial health. The key issue remains Italy, where major doubts remain over the government’s willingness, as well as ability, to make the major cuts necessary to reduce its borrowing to manageable levels.

Unsurprisingly, international lending to Greek banks has dropped quite sharply over the past 12 months, according to latest data from the BIS (Bank for International Settlements). As the chart shows, it was $111bn at the end of June, compared to $174bn in June 2010, and $182bn in December 2009, when the blog first discussed the problem.

Greece of course continues to borrow the same amounts. Instead, it now borrows from the European Central Bank. This means Eurozone taxpayers are standing directly behind the loans, rather than indirectly when the loans were made by the big commercial banks.

This seems to confirm June’s analysis of how the issue will play out:

• Greece will remain in “can’t pay, won’t pay” mode
• Germany will get even more upset about paying Greece’s bills
• Private investors will continue to pass their Greek debt to governments
• The ECB will worry about default, and its own stability if this occurs

The politicians’ habit of ‘kicking the can down the road’ is not solving the key issues. Rather, it is increasing the overall economic cost, and the political risk associated with this.

Meanwhile, European commercial bank loans to the 2 major economies under pressure – Italy and Spain – were $1388bn. This is lower than December 2009’s $1753bn, but an increase since December 2010’s $1326bn. This perhaps explains investors’ underlying nervousness about what happens when the politicians finally have to confront reality.

TUESDAY UPDATE. Greece’s decision to hold a referendum on its austerity plan highlights the fragility of the political consensus behind the current eurozone plans.

PREVIOUS POST

Oil prices remain in their triangle

27/10/2011

A year ago, Petromatrix highlighted the short-term ‘triangle’ that w...

Learn more
NEXT POST

EU's plan to borrow from the poor boosts S&P 500

31/10/2011

The brave new world of modern finance continues to amaze the blog. It still has ...

Learn more
More posts
No Deal Brexit still a likely option if opposition parties fail to support a new referendum
15/09/2019

Canada’s normally pro-UK ‘Globe and Mail’ summed up the prevailing external view of Brexit las...

Read
Day of reckoning approaches for US polyethylene expansions, and the European industry
08/09/2019

Planning for future demand in petrochemicals and polymers used to be relatively easy during the Baby...

Read
China’s renminbi and the global ring of fire
01/09/2019

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Read
Smartphone sales continue their decline, whilst $25 smart feature phones open up new markets
04/08/2019

Global smartphone sales have now been falling for 8 consecutive quarters, since Q3 2017. They are no...

Read
UK, EU27 and EEA businesses need to start planning for a No Deal Brexit on 31 October
28/07/2019

New UK premier, Boris Johnson, said last week that the UK must leave the EU by 31 October, “do or ...

Read
London house prices edge closer to a tumble
21/07/2019

After the excitement of Wimbledon tennis and a cricket World Cup final, Londoners were back to their...

Read
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read
From subprime to stimulus…and now social division
06/07/2019

The blog has now been running for 12 years since the first post was written from Thailand at the end...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more