The banks dragged Eurozone down to fiscal abyss

Press conference by Olli Rehn, Vice-President of the EC, on the in-depth reviews of macroeconomic imbalances in 13 Member States, (EC Audiovisual Services, 10/04/2013).

Press conference by Olli Rehn, Vice-President of the EC, on the in-depth reviews of macroeconomic imbalances in 13 Member States, (EC Audiovisual Services, 10/04/2013).

For a long time now economic analysts and commentators have been arguing that government support to financial institutions was the main culpable party of excess fiscal deficits in the Eurozone and the European Union as a whole. Those are direct subsidies under the form of capital injections, quite different from the support to lenders from the European Central Bank. ECB’s backing to banks takes the form of liquidity injections through low-cost loans, in the context of the central bank’s main refinancing operations. Interest rates on those loans were close to zero, at a fixed rate to be reduced to 0.5% from 0.75% as from 8 May when the new lower rate will be in effect.

Capital from taxpayers

Government capital injections to banks directly inflated public deficits and taxpayers obligations, sending some euro area countries to seek the ‘protection’ of the troika of European Commission, the European Central Bank and the International Monetary Fund. The three Eurozone member states (Greece, Portugal and Ireland) most tormented by the troika’s austerity programmes, were also the ones which were obliged to subsidise their home banks with sums amounting to many percentage points of their GDP. Apart from those three Eurozone member states, the so-called programme countries, many more euro area members were obliged to recapitalise their home banks in order to save their entire financial system from a total collapse.

Ireland was the country to have paid the dearest price for its home banks’ financial and otherwise sins. More than one-quarter of the Irish GDP was consumed to support the country’s lenders. This operation sent Ireland to the abyss of budget deficits, a load to be repaid by at least one more generation of taxpayers.

However the exact part of Eurozone government deficits caused by public support to banks was not known. Eurostat, the EU statistical service conducted a special study on this issue, under the title “Support for financial institutions increases government deficits in 2012”. For that year Eurostat found that “In 2012 public interventions to support financial institutions increased government deficits in 13 out of 19 Member States that reported such interventions. Eight Member States did not report any such interventions. The increase in deficits was particularly large in Greece and Spain. The Greek deficit increased by 4.0 percentage points of GDP and the Spanish deficit by 3.6pp, largely due to the resolution and recapitalisation of a number of banks”.

Overall burden

Despite the fact that the problems with the banks were confined mainly to Ireland, Greece and Spain total subsidies of that kind in the Eurozone were quite substantial. According to Eurostat, ”In 2012, the overall impact on government debt resulting from past and present support for financial institutions was estimated at 5.2% of GDP for the EU and 5.5% for the euro area”.

Of course government support to banks was not confined to 2012. Capital injections from the public to financial sector are being realised all along the crisis years from 2007 onwards. It is also likely that support to financial institutions will continue to have a substantial impact on government deficit/surplus of individual EU Member States also in 2013.

In any case the over-all impact all along the 2007-2012 was not distributed regularly over time. Eurostat found that, “Both for the EU and the euro area, the net impact was marginally deficit-increasing in 2007, 2008 and 2009, became much more pronounced in 2010 and decreased sharply in 2011. The net impact was noticeably deficit-increasing again in 2012, largely due to bank recapitalisations and resolutions. A spike in government expenditure for 2010 was mainly due to massive capital transfers to Irish banks as well as federal and state-level liquidation agencies in Germany”.

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Hollande protects the euro from the attacks of extremists

The EU risks trade relations with China over the Tata hype about steel

Two shipwrecks add to ‘alarming increase’ in migrant deaths off Libya coast: IOM

$675 million appeal to stop coronavirus in its tracks, as deaths rise

Here’s what happened when one Guatemalan town went to war on plastic waste

EU’s tougher privacy rules: WhatsApp and Facebook set to be soon aligned with telcos

How tiny countries top social and economic league tables (and win at football, too)

Time to pay up: UN summit to push for development finance breakthrough

Emergency meeting called as Ebola spreads to Congolese city – UN health agency

The Sahel is engulfed by violence. Climate change, food insecurity and extremists are largely to blame

12 ways the tech sector can help save the climate in 12 years

‘Emulate his example’ urges UN chief as world celebrates Nelson Mandela: a ‘global advocate for dignity and equality’

Shanghai has tough new recycling rules – and it will stop collecting trash from communities that don’t comply

A Year in China

Youth Forum calls on Parliament to ease entry into Europe for young people

IMF asks Europe to decide on bank resolutions and the Greek Gordian knot

Millions in Idlib ‘counting on your support to make the violence stop’, UN relief chief tells Security Council

Europe should make voice ‘more heard’ in today’s ‘dangerous world,’ says UN chief

Tax revenues have reached a plateau

EU Parliament semi worried over democratic deficit

A geared turbofan at Pratt & Whitney's production hub in West Palm Beach (copyright: Pratt & Whitney - a UTC Company- 2018; Source: Pratt & Whitney's website, media center)

The EU Commission approves UTC’s acquisition of Rockwell Collins under conditions

Want to cut greenhouse gas emissions? Look to digital technologies

How Germany strives to mold ECB’s monetary policy to her interests

World’s 1.8 billion youth must ‘have a say in the future of the planet’

EU and China resolve amicably solar panel trade dispute

This massive project in Spain is the latest milestone in Europe’s solar power boom

Stepped-up efforts needed to combat pneumonia; save nearly nine million children’s lives

A safer, more dignified journey for all migrants, tops agenda at global conference in Marrakech

Politicization of migrant ‘crisis’ in Hungary making them scapegoats, independent UN human rights expert warns

UN rights chief slams ‘unconscionable’ US border policy of separating migrant children from parents

Senior UN children’s advocate says they ‘should never be targeted by violence’

FROM THE FIELD: ‘Harvested’ rainwater saves Tanzanian students from stomach ulcers, typhoid

Europe bewildered by radicalisation and terrorism

Belgium: keep up reforms to increase employment and productivity growth

Changing for the change: Medicine in Industry 4.0

Why 2020 is a turning point for cybersecurity

‘Forgotten crisis’ in Cameroon, with attacks on the rise, millions in need of ‘lifesaving assistance’

Human trafficking cases hit a 13-year record high, new UN report shows

Is mental health really ‘health’?

These are the OECD’s most productive economies

Banks launch green charter to help shipping reduce its carbon footprint

‘Nothing left to go back for’: UN News hears extraordinary stories of loss, and survival as Mozambique rebuilds from deadly cyclones

Female African coders ‘on the front-line of the battle’ to change gender power relations: UN chief

Humanitarian migration falls while labour and family migration rises

Consumers to be better protected against misleading and unfair practices

Jakarta is one of the world’s fastest disappearing cities

It’s time to end the stigma around mental health in the workplace

Deep science: what it is, and how it will shape our future

UN rights chief says ‘bar must be set very high’ for investigation of murdered Saudi journalist

Force used against protestors in Gaza ‘wholly disproportionate’ says UN human rights chief

Norway has successfully enforced its foreign bribery laws but faces potential obstacles

Unity, regional cooperation and international support needed for Horn of Africa to develop sustainably

Climate change and health: Raising awareness is the key for greener actions

Restoring government control across Central African Republic is ‘key’ to lasting peace, stability – UN envoy

Guterres welcomes conduct of Afghan elections, commends ‘all who braved security concerns to uphold their right to vote’

Facebook has built an AI-based tool that fixes the social network when it crashes

There’s a new global technology race. It needs better trade rules

As north-west Syria violence reaches ‘horrifying’ new level, UN relief chief says ceasefire is only option

EU Commission draws the wrong conclusions

How India’s globalized cities will change its future

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s