The graphs that show why Europe is on the verge of collapse


by Guest    
10:45 am - September 19th 2011

      Share on Tumblr

contribution by David Malone

For anyone who thinks that crushing the Greeks with even more debt and even more austerity will somehow ‘save’ europe’s insolvent banks here from Reuters is why it won’t.

This isn’t the fabled public debt wracked up by countless lazy, feckless layabouts doing nothing and expecting to be given flat screen televisions and hospital care they don’t deserve. This is debt created by, agreed to and marketed by private bankers throughout Europe – for which they received massive bonuses.

First here’s Europe’s bank exposure to Greece:

I think that shows quite clearly why French banks have been pulverized and the size of the crater on whose edge they teeter. But let’s imagine Germany ignores the rising tempest of public anger and throws its money into the hole.

Now let’s look at Italy.

Oops! France still collapses. Italy is ruled by a cretin who gives visas to men who pimp for him so he can ‘Carry on Fornicating” while Italy, never mind Rome, burns.

And why will Italy collapse? This is why.

Over 400 billion dollars worth of Italy’s debt has a maturity of ONE year. Another 250 billion in TWO years.

And just in case you were thinking it was all France and Italy,

“‘Germany’s 10 biggest banks need 127 billion euros ($175 billion) of additional capital’, German newspaper Frankfurt Allgemeine Sonntagszeitung reported, citing a study by economic research institute DIW.”

In case you want to see more of the images,they come from a very good Reuters graphic of the total European debt debacle which you can see in its horrid entirety here, here and here.


David Malone is the author of Debt Generation

    Share on Tumblr   submit to reddit  


About the author
This is a guest post.
· Other posts by


Story Filed Under: Blog ,Economy ,Europe ,Foreign affairs


Sorry, the comment form is closed at this time.


Reader comments


For anyone who thinks that crushing the Greeks with even more debt and even more austerity

madre de dios … look, if you don’t like austerity, you need more debt, because you’re spending more than you’re gathering in tax revenues, see? If you don’t like more debt, then you need austerity, to bring spending in line with revenues. There is no “no more debt nor any austerity” option.

This is debt created by, agreed to and marketed by private bankers throughout Europe – for which they received massive bonuses.

what does this even mean? We’re talking about government debt aren’t we? This is when governments borrow money from private investors. This debt is owned by some banks, because part of what a bank does is act as an intermediary between savers and borrowers – savers being us lot, borrowers being governments. Also – see Richard W’s recent comments – OECD government debt gets special treatment under banking regulations.

This isn’t the fabled public debt wracked up by countless lazy, feckless layabouts ….

isn’t it? I mean not the feckless lazy stuff, but we are talking about “public debt” aren’t we? Money borrowed by governments? And some of these governments have certainly been guilty of some, shall we say, inefficiency and irresponsibility with the use of borrowed monies.

This isn’t the fabled public debt wracked up by countless lazy, feckless layabouts doing nothing and expecting to be given flat screen televisions and hospital care they don’t deserve. This is debt created by, agreed to and marketed by private bankers throughout Europe – for which they received massive bonuses.

Hang on, those first graphs are of banks’ exposure to sovereign debt isn’t it? So it is debt “wracked” up by lazy, feckless layabouts, and then made especially attractive to banks by the sort of supra-national financial regulation that is usually cited as being the solution to these problems – because one of the reasons that French banks are on the hook for Italian national debt is that Italy is a member of the OECD, and OECD sovereign debt is classified as risk-free Tier One capital in the Basel III regulations.

As ever, Luis is more cogent than I am, although at least my html is better…

“This isn’t the fabled public debt wracked up by countless lazy, feckless layabouts doing nothing and expecting to be given flat screen televisions and hospital care they don’t deserve. This is debt created by, agreed to and marketed by private bankers throughout Europe – for which they received massive bonuses.”

Where you’re going wrong is in assuming that these are different things, in order for someone to borrow, someone else has to lend. Suggesting there is something wrong with “private bankers” doing the lending is peculiar, should it just be one government lending to another?

Another point is that sovereign debt is not normally the choice area for your greedy speculators but for sensible, stolid entities looking for a low risk but low return investment.

“For anyone who thinks that crushing the Greeks with even more debt and even more austerity will somehow ‘save’ europe’s insolvent banks here from Reuters is why it won’t.”

True, but then there is no point pushing for more lending for Greece at this point either. Greece is so broke that it must default and restructure to ever have a hope of recovery, the sooner it does this the better for them and the better for us because we can stop throwing money down the swanee.

everybody and their dog knows the Euro and its governments and banks are in very hot water, and there internet is full of well informed commentary on the topic.

some that recently caught my eye – including a very interesting German view of the Greek situation:

http://www.spiegel.de/international/europe/0,1518,785690,00.html

http://blogs.reuters.com/felix-salmon/2011/09/08/when-fractured-politics-kills-economic-solutions/

http://www.voxeu.org/index.php?q=node/6923

Why LC chooses to bring us economic commentary from R Murphy, E Clarke, World Development Network and David M – rather like having Jeremy Clarkson, James Delingpole and Anne Coulter write about Global Warming – only Sunny knows.

(David, if you’re reading, whilst don’t think you have the best of grips on the subject matter, at least unlike R Murphy and co, you’re not a pompous arse to go with it)

Baloney.

More than half of the debt is held by public institutions not private banks: European governments, the IMF, the ECB and euro-zone national central banks now hold more than 50% of Greece’s public debt. Thus, it will be taxpayers who have to pick up at least half of any tab.

this is also a must-read on this topic

http://www.imf.org/external/pubs/ft/fandd/2011/06/reinhart.htm

see in particularly box 2 – captive markets.

what that last link is about:

Financial repression occurs when governments implement policies to channel to themselves funds that in a deregulated market environment would go elsewhere. Policies include directed lending to the government by captive domestic audiences (such as pension funds or domestic banks), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks, either explicitly through public ownership of some of the banks or through heavy “moral suasion.” Financial repression is also sometimes associated with relatively high reserve requirements (or liquidity requirements), securities transaction taxes, prohibition of gold purchases, or the placement of significant amounts of government debt that is nonmarketable. In the current policy discussion, financial repression issues come under the broad umbrella of “macroprudential regulation,” which refers to government efforts to ensure the health of an entire financial system.

This isn’t the fabled public debt wracked up by countless lazy, feckless layabouts doing nothing and expecting to be given flat screen televisions and hospital care they don’t deserve.

An interesting angle on the ‘feckless public spending’ point comes from Comitini in Sicily.

With only 960 residents and a handful of roads, this tiny hilltop village in the arid, sulfurous hills of southern Sicily does not appear to have major traffic problems. But that does not prevent it from having one full-time traffic officer — and eight auxiliaries.

The auxiliaries, who earn a respectable 800 euros a month, or $1,100, to work 20 hours a week, are among about 64 Comitini residents employed by the town, the product of an entrenched jobs-for-votes system pervasive in Italian politics at all levels.

http://www.nytimes.com/2011/09/15/world/europe/italy-austerity-plan.html?_r=4&hp=&pagewanted=all

The auxiliaries, who earn a respectable 800 euros a month, or $1,100, to work 20 hours a week, are among about 64 Comitini residents employed by the town, the product of an entrenched jobs-for-votes system pervasive in Italian politics at all levels.

And of course once those jobs are threatened by ‘austerity’ we see politicians moaning about how the banks or the markets (or both) are oppressing democracies.

@ 9 Tim

We have our own versions of those quaint goings-on in Sicilian hilltop villages.

My work frequently takes me into a large London hospital. Recently the whole foyer was taken up with a lavish exhibition of the trust’s many diversity initiatives and the HR department’s Diversity Officers were out in force.

Which would be okayish if it weren’t for the fact that only 42% of the Trust’s staff are White British and that 78% are female. A third of the hospital’s doctors are Asian (Indian) alone. The majority of nurses and midwives are BME.

Much as one would imagine for the NHS in Central London. And all well and good.

The question is – why, if the institution already has such a diverse workforce, does it need to spend a single penny employing diversity bureaucrats? They are as unnecessary as traffic wardens in tiny hilltop villages in Sicily.

@11

I think you’ll find that the “Diversity Officers” you describe were regular HR admins who had been requisitioned to assist publicity of the initiative. If I had large amounts of money to wager I’d be prepared to wager them on there not being a single HR officer for whom diversity is their sole remit, instead being a single facet of the general duties of maybe one or two officers.

Should be @12, something funky happened with the numbering there…

Luis,

Why LC chooses to bring us economic commentary from R Murphy, E Clarke, World Development Network and David M – rather like having Jeremy Clarkson, James Delingpole and Anne Coulter write about Global Warming – only Sunny knows.

The positive is that people such as you and Richard W are patient enough to help people like me to understand why Murphy & co. are wrong.

@ Luis

“if you don’t like austerity, you need more debt, because you’re spending more than you’re gathering in tax revenues”

So if we don’t like austerity, or debt, then we can… Oh, I don’t know… RISE TAX REVENUES?

All that money the rich don’t know what to do with, and ends up being wasted in “bonga bonga” parties, could easily go to the state coffers.

Mary,

Yes, you’re right. Raising tax revenues would help a lot. Of course, big tax increases also impact the economy, and you can’t close a Greek size deficit by just taxing the rich, so austerity can come in the form of both tax rises and spending cuts. But tax increases, or rather, actually collecting the taxes that already exist in Greece, is certainly part of the answer.

@16 – Or, you know, just collect the tax which is already due? The UK has a tax gap which is rapidly heading towards the size, proportionately, of Greece’s… (in absolute terms, well, already larger!)

@17 & 18: I know Greece quite well having lived and worked there, (pre Euro), and part of the reason that the Greeks have no compunction about not paying taxes is that they believe, with very good reason, that their politicians are a bunch of crooks. The crookedness of politicians is something that has gathered more notice over here as the tax gap has been increasing as well, perhaps there is a connection?

As for the position that the Greeks are in now; there is no way that they could ever repay the debt. They should default, we should stop pissing into the wind.

20. Leon Wolfson

@19 – No, not related. The Greek gap is primarily in personal tax (and we have a deacent PAYE system), the UK gap is primarily in corporate taxes and for the very rich.

21. So Much For Subtlety

16. Mary Tracy

So if we don’t like austerity, or debt, then we can… Oh, I don’t know… RISE TAX REVENUES?

Sure, but the Greeks are at a stage where even raising taxes isn’t going to help much. Their debt is just too big. They owe something like $485 billion.

All that money the rich don’t know what to do with, and ends up being wasted in “bonga bonga” parties, could easily go to the state coffers.

Whatever else you can say, there just aren’t enough rich Greeks to pay this debt. Even if you killed them all and took all their money. It wouldn’t even make a dent in the Greek debt. Nor do the rich have more money than they know what to do with. The rich do most investing. Tax them more and economic growth slows down – and economic growth is the only relatively painless way the Greeks have to deal with this. Even their bonga bonga parties cause economic growth in the way of redistributing money to poor women from rural areas, to the makers of bikinis and peroxide, to hairdressers, waxers and the like. It all adds up. Tax too much and the economy dives.

18. Leon Wolfson

Or, you know, just collect the tax which is already due? The UK has a tax gap which is rapidly heading towards the size, proportionately, of Greece’s… (in absolute terms, well, already larger!)

You could and the Greeks should. Not that it would help. However Britain does not have a tax gap. British people pay the tax they are owed.

20. Leon Wolfson

The Greek gap is primarily in personal tax (and we have a deacent PAYE system), the UK gap is primarily in corporate taxes and for the very rich.

The British “tax gap” is entirely the invention of a few self-interested lobby groups who have used dodgy accounting and outright nonsense to claim a problem which does not exist. British people voluntarily pay the taxes they owe. Maybe even more than they owe. Although this is changing. We do have a PAYE system although calling it decent is another matter. It is certainly harder to avoid.

22. Leon Wolfson

@SMFS – Right, of course, we can’t actually proper tax major corporation’s and rich people, we have to screw everyone else and plunge headlong into a crisis which will make Greece’s seem mild in a few years.

Your propaganda isn’t even good, it’s just very obviously delusional.

23. So Much For Subtlety

22. Leon Wolfson

Right, of course, we can’t actually proper tax major corporation’s and rich people, we have to screw everyone else and plunge headlong into a crisis which will make Greece’s seem mild in a few years.

Leon, I know this is hard for you to understand, but we already properly tax major corporations and rich people. They provide a massive share of the revenue of the Government as it is. Nor do they break the law in refusing to pay their share.

Your propaganda isn’t even good, it’s just very obviously delusional.

In the end Leon, reality is not optional. Try it.

@ Leon and others

There is probably a tax gap.

BUT

It is probably pretty small, caudsed by evasion rather than avoidance by big companies. A huge amount of the tax gap actually comes from evasion on smaller transactions, not big corporations. Basically small business doing cash in hand work etc. Corporations will legally arrange their tax affaris to minimise tax but they do everything by the book.

Richard Murphy’s tax gap estimates are pure fantasy though.

A huge amount of the tax gap actually comes from evasion on smaller transactions, not big corporations.

I think one of the largest single components of the ‘tax gap’ as calculated by HMRC is actually companies going bankrupt before they pay their tax bill.

Nice graphs, shame about the analysis.

Chicken Little’s graphs may seem terribly scary but they need to be seen in some context.

He points to French banks’ USD 56.9bn exposure to Greece and claims this “shows quite clearly why French banks have been pulverised”. I hate to break it to him but USD 56.9bn isn’t really that much on a mega-French-bank scale.
BNP brushed off its Greek write offs and this is what Moody’s had to say about Societe Generale’s exposures:

“Since the start of the review for downgrade, SocGen, along with many other financial institutions, has expressed its intention to participate in a proposed restructuring of Greek debt. This led to its recognition of EUR395 million in impairments in the second quarter of 2011 (1). SocGen was able to comfortably absorb this amount, as it reported net earnings of EUR747 million for the quarter and continues to build its capital ratios. However, at 30 June 2011, SocGen still had net exposures to Greek government bonds of EUR1.9 billion (2), virtually all of which have been impaired.”

Moreover, Mr. Little’s analysis implies that all this money will be lost whereas it is highly likely that it won’t. The concept that Italy simply won’t pay its debt is off the scale; it won’t happen (but for some reason Mr. Little would like to tell us it could).
As Moody’s explained, even in worst-case scenarios the French banks are high investment grade.

Is it responsible to pump out wild speculation like this? (In a different way) The Mail did it regarding SG and got sued.

27. Leon Wolfson

@26 – There’s been constant and massive irresponsibility from some quarters since the start of this. Will they be called on it, let alone punished? About as much as the bankers…

@27 I’m not calling for anyone to be punished. What I’m wondering is why self-described liberal sites are mounting populist campaigns based on purposeful misreading of facts.

29. So Much For Subtlety

26. AnotherTom

Chicken Little’s graphs may seem terribly scary but they need to be seen in some context. He points to French banks’ USD 56.9bn exposure to Greece and claims this “shows quite clearly why French banks have been pulverised”. I hate to break it to him but USD 56.9bn isn’t really that much on a mega-French-bank scale.

Société Générale S.A.’s paid up equity is just under $51 billion. Sure, $56.9 billion is not much for a French bank, but it is more than SG is worth.

Moreover, Mr. Little’s analysis implies that all this money will be lost whereas it is highly likely that it won’t. The concept that Italy simply won’t pay its debt is off the scale; it won’t happen (but for some reason Mr. Little would like to tell us it could).

We will see what the Greeks and Italians do. If they write off everything through a default, then it will all be lost. That would bankrupt a lot of French banks. If there is some sort of restructuring that involves a partial pay out, then they may survive.

Or not.

We will have to see. But it could simply because if you are going to default, you may as well default big.

@29 Are David Malone? You have simply repeated his flawed argument.

“If they write off everything through a default, then it will all be lost.”

Yes, if the sky were to fall on our heads then this would indeed be a bad thing.

Simply asserting the worst case scenario doesn’t make it any more likely that it
will take place. If a mutant shark were to turn up in my office and start eating people then all will be lost too but at the moment I’m not too worried we don’t have a shark cage around the door at present.

There’s no actual new evidence in anything you or Mr. Malone say. He just hopes – for whatever reason – that every possible worst-case scenario happens at exactly the same time, at the same time as every political and financial leader decides to make every wrong decision at every turn.

Now there’s no reason why this won’t happen it’s just extremely unlikely that it will (if you believe in his reasoning I suggest you go out and buy and lottery ticket – you are *sure* to win), and the graphs that Mr. Malone so proudly show mean little in the context of his argument; indeed, what they do show is that after 30 years of economic integration one large European economy is heavily intertwined with another (which suggests the French banks (which always have a corporatist flavour) aren’t about to pull the plug).

“Société Générale S.A.’s paid up equity is just under $51 billion. Sure, $56.9 billion is not much for a French bank, but it is more than SG is worth.”

This is not really how banks work. As I wrote above, SG’s Greek exposure is EUR 1.9bn. Even if it had to write off half of this (a true worst-case scenario) then it would only see a loss of just under EUR 1bn. It reported net earnings of close to that figure last quarter.

31. So Much For Subtlety

30. AnotherTom

Simply asserting the worst case scenario doesn’t make it any more likely that it will take place. If a mutant shark were to turn up in my office and start eating people then all will be lost too but at the moment I’m not too worried we don’t have a shark cage around the door at present.

I agree with the first bit but I am not asserting it will take place. I am asserting that it is a risk. Mutant sharks are unlikely. Defaults are not. The longer the EU refuses to allow an orderly default, the more likely a disorderly – and total – one is.

There’s no actual new evidence in anything you or Mr. Malone say. He just hopes – for whatever reason – that every possible worst-case scenario happens at exactly the same time, at the same time as every political and financial leader decides to make every wrong decision at every turn.

I am sorry to hear you don’t read so well. They have made every wrong decision at every turn so far. Why would anyone think they will stop now?

indeed, what they do show is that after 30 years of economic integration one large European economy is heavily intertwined with another (which suggests the French banks (which always have a corporatist flavour) aren’t about to pull the plug).

Actually that is not what it shows. Notice how little British bank exposure there is. What they show is the superiority of the British economic model. The French banks are, as you say, strongly corporatist. Which means they have lent for political reasons – to support French foreign policy which wants a strong EU. Britain and to a lesser extent Germany have not.

The decisions here are not for the French banks to make. The question is whether the Greeks et al will default. The next question is whether the French state will back their banks and move heaven and earth to stop them defaulting.

This is not really how banks work. As I wrote above, SG’s Greek exposure is EUR 1.9bn. Even if it had to write off half of this (a true worst-case scenario) then it would only see a loss of just under EUR 1bn. It reported net earnings of close to that figure last quarter.

Yes it is actually. That is SG’s exposure to Greek government bonds. That is not the same as to Greece. But if so, then someone has lent them too much money and luckily for SG it is not them. A true worst-case scenario remains all of it, not half. But I agree, SG might survive. The point remains that 50 billion is a lot in the context of the French banking system. If they lose 25 billion, that is going to hurt. Someone anyway. Now the ECB has been buying up those banks’ debts so it will be the tax payer I guess, but you don’t lose that sort of money without people noticing.

But I will agree Greece is probably survivable. Spain or Italy are not.

Notice how little British bank exposure there is. What they show is the superiority of the British economic model.

Not really, they just show that Britain is comparatively disengaged from the European financial system. There are good, historical reasons why France is more exposed to Italian debt than the UK is – if the graphs were of European exposure to Irish debt then I suspect that Britain would show up less well.

@31 I think any credibility you might have had went out the window when you claimed that the minimal British bank exposure shows “the superiority of the British economic model”. I had to lie down for a while after reading that. Let me introduce you to RBS, a “superior” British bank … or HBOS, another marvellous demonstration of the British economic model!

I see your points, and those of Mr. Malone: if you take the worst case scenario, then squint your eyes and get really depressed, empty your mind of history and context and then consider the worst case scenario of that (call it “worst case scenario squared”) then do that two or three times again, you get to a really bad place. Like, duh?

34. William Smart

Back in 2008, one of my contacts in the city predicted that this would be bloody with disorder on the streets.

Everyone I know (other than union members and their leaders!) either seems to agree or is at least extremely worried by the future.

The remaining small mystery is why we’ve ignored what’s coming for so long.

This is the first time I have visited your site and I am amazed at the amount, the value and the clarity of the information you have provided.

The graphs don’t tell all but tell a lot.

Who (don’t) remember the first Greek rescue plan (back in March 2010) that would fix everything or almost, according to Eurocrats and… bankers? (I wrote about this on Lib Dem Voice: http://www.libdemvoice.org/opinion-another-greek-tragedy-time-for-europhiles-to-admit-the-dream-is-over-18240.html)

Beyond the Greek, and in fact what is turning out as an explosive (or implosive) mix of financial, currency and banking crisis -and not only a eurozone one, we are watching the end of the (supposed) European dream. This turns into a totally undemocratic nightmare in which Eurocrats and financiers work hand in glove to make people(s) pay for their (huge) mistakes.

A wrapup of literature about the euro(zone) crisis can be found at http://www.mikeconomics.net/.

Liberals and progressives in the UK and elsewhere should be well inspired in dropping their traditional europhilia and in rediscovering the beauties of national (and regional) autonomy and more government than short-term markets’ control on the variables of political economy. Sovereignty, that is. Don’t leave this concept and its content to conservatives and the right.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    The graphs that show why Europe is on the verge of collapse http://t.co/uBC0Uea6

  2. Phil BC

    RT @libcon The graphs that show why Europe is on the verge of collapse http://t.co/emPKRVvY << Terrifying stuff.

  3. Andy Fever

    Gulp – scary stuff: @libcon: The graphs that show why Europe is… http://t.co/Cqt0fVR9

  4. Richard Goulding

    The graphs that show why Europe is on the verge of collapse http://t.co/uBC0Uea6

  5. Jonathan Davis

    RT @libcon The graphs that show why Europe is on the verge of collapse http://t.co/emPKRVvY << Terrifying stuff.

  6. Vassili Alexeivitch

    "Nous résistons mieux que les autres à la crise" http://t.co/nhWp6sLQ #MaisBienSur #MarmotteChocolat

  7. Debbie Jolly

    RT @libcon The graphs that show why Europe is on the verge of collapse http://t.co/XmRm9iPQ

  8. Paul Wood

    Oh. Crap. RT @libcon The graphs that show why Europe is on the verge of collapse http://t.co/l0CQzOHz

  9. Finola Robinson

    The graphs that show why Europe is on the verge of collapse http://t.co/uBC0Uea6

  10. copperbird

    The graphs that show why Europe is on the verge of collapse | Liberal Conspiracy http://t.co/WOdKjyXW via @libcon

  11. Andy Saul

    The graphs that show why Europe is… http://t.co/8uPBfbTY

  12. Alex Braithwaite

    The graphs that show why Europe is on the verge of collapse | Liberal Conspiracy http://t.co/DY50fD0l via @libcon

  13. Gareth Jones

    http://t.co/RBMCefY6 The graphs that show why #Europe is on the verge of collapse #eurocrisis #bankfail

  14. Kirstin Donaldson

    The graphs that show why Europe is… http://t.co/8uPBfbTY

  15. Patrick Hadfield

    RT @libcon The graphs that show why Europe is on the verge of collapse http://t.co/FULBnbJd > scary

  16. Frank Hattann

    Why Europe is on the verge of collapse | Liberal Conspiracy http://t.co/Amcxvb1y via @libcon





Sorry, the comment form is closed at this time.