The eurozone debt crisis is no nearer solution

Financial Events

SHARE THIS STORY

BIS loans Sept13The Eurozone crisis has been quiet since the summer of 2012, as the markets waited for the German election.  But now this has occurred, it is unlikely that the problem can continue to be ignored.

It is easy to forget the drama of May 2012, when the blog correctly forecast a crisis was about to occur in the PIIGS countries (Portugal, Italy, Ireland, Greece, Spain).  Its view went mainstream in June, when major debt write-offs then took place in Greece, Ireland and Portugal.  Total meltdown was only avoided when the European Central Bank (ECB) promised to ‘do whatever it takes’ to save the euro.

Luckily for the ECB, the meaning of this empty promise has not yet been truly tested by the markets.  Instead, the issue has been ‘on hold’ as investors preferred instead to believe that the new German government would quickly provide the necessary financial support, once the “detail” of September’s election was out of the way.

But the blog stopped believing in fairy tales a long time ago.  So it is time to again review the loan position with the PIIGS, using latest data from the Bank for International Settlements (BIS), the central bankers’ bank.  This shows:

  • Total loans to the PIIGS have further reduced, and were down 45% in March versus 2009
  • Greece is down 82%, Spain down 47%, Portugal down 44%, Ireland down 43%, Italy down 38%
  • As a percentage of GDP, the decline is quite frightening, equal to 30% of the PIIGS’ total economy
  • The loan decline is 100% of Ireland’s GDP, 60% of Greece’s, 48% of Portugal’s, 27% of Spain’s, 18% of Italy’s

Now the election is over, the fairy tale will probably end.  And as the former BIS economic adviser, William White, warned a year ago, “risks are surely building up“.

Of course, investors were happy to take the free money from the central banks and speculate with it in oil and other markets.  But this did not solve the core Eurozone problem, which is that it needs full economic and political union if it is to survive.  A common currency simply cannot work without these, as German Chancellor Kohl and French President Mitterand agreed in 1990 when agreeing to launch the euro.

Equally it is naïve in the extreme to believe that German taxpayers will happily pay the bills for Southern Europe.  The German word for debt is, after all, Schuld – which also means guilt.  And in Germany the Eurozone debate is a morality play, where those in debt are ‘sinners’.

PREVIOUS POST

"We really see retirement as the next big financial crisis"

10/10/2013

How much money will you actually get when you retire?  And how secure will that...

Learn more
NEXT POST

Recovery has been delayed, again

14/10/2013

Recovery has been delayed, again.  That is the clear message from the blogR...

Learn more
More posts
China’s property sector is at the epicentre of the crisis
29/03/2020

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

Read
“They may ring their bells now, before long they will be wringing their hands”
15/03/2020

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Read
Will stock markets see a Minsky Moment in 2020?
05/01/2020

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Read
Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis
22/12/2019

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

Read
$50bn hole appears in New York financial markets – Fed is “looking into it”
29/09/2019

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainl...

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
Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500
06/01/2019

How can companies and investors avoid losing money as the global economy goes into a China-led reces...

Read
Why everyone ignored my warnings ahead of the financial crisis
16/09/2018

It’s 10 years since my forecast of a global financial crisis came true, as Lehman Brothers col...

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