EU Banks still get subsidies from impoverished citizens

Press conference by Michel Barnier, Member of the European Commission, on the establishment of a Single Resolution Mechanism for the Banking Union. He is probably showing the dimensions of connections between governments and banks. (EC Audiovisual Services).

Press conference by Michel Barnier, Member of the European Commission, on the establishment of a Single Resolution Mechanism for the Banking Union. He is probably showing the extent of connections between governments and banks. (EC Audiovisual Services).

Five years after the melt down of the western financial system, triggered by the bankruptcy of Lehman Brothers in September 2008, and the European taxpayers still pay the price. According to European Commission’s estimates the cost of government (aka taxpayer and all citizens) support to failing banks in Eurozone reached €4.5 trillion during the first years of the crisis. Unfortunately there is not an end to this.

Eurostat, the EU statistical service, released yesterday a survey portraying government deficit and debt data for 2011 – 2012. A special part of this Eurostat survey is devoted to the estimates of subsidies accorded to banks. According to those estimates, during the two-year period of 2011- 2012, the impact of the support to financial institutions on government deficits was 0.7% of Eurozone’s GDP, or €67 billion. In the EU28 this impact was a bit less at 0.5% of GDP. No doubt then that a good part of government deficits is still attributed to government aid to failing financial institutions, many years after the crisis. Let’s dig a bit deeper into this.

Who pays the price?

All along during the past five years, many Eurozone and other EU countries had to introduce severe austerity programmes, cutting down wages, pensions, social protection and increase taxation, in order to arrest deficits and debts. Eurostat found that this endeavour was successful. No reference is made of course by the statisticians, to the great social and political costs which now shake badly the south Eurozone countries.

According to this source, “In the euro area the government deficit to GDP ratio decreased from 4.2% in 2011 to 3.7% in 2012 and in the EU28 from 4.4% to 3.9%. In the euro area, the government debt to GDP ratio increased from 87.3% at the end of 2011 to 90.6% at the end of 2012 and in the EU28 from 82.3% to 85.1%”.

In 2012, seventeen member states had budget deficits higher than 3% of GDP, “with the largest registered in Spain (-10.6%), Greece (-9.0%), Ireland (-8.2%), Portugal and Cyprus (both -6.4%). In all, fifteen Member States recorded an improvement in their government balance relative to GDP in 2012 compared with 2011, twelve a worsening and one remained stable”. Invariably ,all the worst hit countries by government deficits had to support their banks. In Greece, the part of deficit attributed to aid to the financial system was 3.1% of the GDP in the two-year period of 2011-2012. For Spain the relevant figure was 4% of GDP, for Ireland 4.5% of GDP, Portugal 1.1% of GDP and Slovenia 0.5%.

It’s always the banks

The impact of government aid to financial institutions on sovereign debt was also important. It affected though a much larger number of EU countries and not only the ‘usual suspects’. According to Eurostat, “The largest impact on the government balance sheet is observed in Ireland (an increase in liabilities by 28 percentage points of GDP in 2012). The impacts are also large in Belgium, Denmark, Germany, Greece, Spain, Cyprus, Latvia, Luxembourg, the Netherlands, Portugal and the United Kingdom, with the highest annual impacts exceeding 4pp of the GDP.

However, apart from the straight forward liabilities undertaken by governments, resulting from their direct aid to financial institutions, there are more hidden ones. Eurostat calls them “contingent liabilities”. According to this source, there are “contingent liabilities which may contribute to government liabilities in the future, but are not currently recorded as government debt. In the majority of the 18 EU member states that undertook such interventions, they result exclusively from guarantees granted on financial institutions’ assets and (or) liabilities.

In two member states (Greece and the United Kingdom) significant amounts of contingent liabilities arose due to securities issued under liquidity schemes. In France the most important component of contingent liabilities is the value of financial instruments transferred to a special purpose vehicle. A further five member states (Denmark, Ireland, Spain, Austria and Portugal) report liabilities relating to special purpose vehicles, but they constitute a lower proportion of their total contingent liabilities”.

In reality, there is no end to this close interconnection, between exchequers and financial institutions. Hopefully, the enactment of the European Banking Union and the institutionalisation of the Single Supervision Mechanism over Eurozone’s banking system under ECB, will cut off this catastrophic umbilical cord connecting governments and banks.


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

In Tokyo, UN chief expresses full support for US-Japan dialogue with North Korea

This is where people work the longest – and shortest – hours

There are 3 barriers blocking good menstrual hygiene for all women. Here’s how we overcome them

5 technologies that will forever change global trade

The link between migration and technology is not what you think

Traditional finance is failing millennials. Here’s how investing needs to change

5 surprising ways digital technology is changing childhood

Africa-Europe Alliance: Denmark provides €10 million for sustainable development under the EU External Investment Plan

Spanish and Polish voters are crying out for an imminent European change while US urge now Germany to change route

How to make primary healthcare a favourable career choice for medical students: strategies and reflections

Tuesday’s Daily Brief: hate speech, dementia, Libya and Yemen, human rights in Brazil and Lebanon

Why the UN is investigating poverty in the United Kingdom

EU readies for eventual annulment of the Turkish agreement on immigrants-refugees

More women and girls needed in the sciences to solve world’s biggest challenges

UN human rights ruling could boost climate change asylum claims

Draghi reveals how failing banks will be dealt, may cut interest rates soon

Malaysia can show the way towards a holistic model for human rights

Sweden gives all employees time off to be entrepreneurs

It’s time for the circular economy to go global – and you can help

Intel, Almunia and 1 billion euros for unfair potatoes

Why Eurozone can afford spending for growth

Yemen bus attack just the latest outrage against civilians: UN agencies

Do not confuse food charity with ‘right to food’, UN expert tells Italians, labelling food system exploitative

Iraq: Security Council told ‘despair’ has ‘given way to hope’ but road to stability ‘long and far from easy’

Bring killers of journalists to justice: UN agency seeks media partners for new campaign

Questions and answers: Commission proposes SURE, a new temporary instrument worth up to €100 billion to help protect jobs and people in work

At COP24, countries agree concrete way forward to bring the Paris climate deal to life

Can Europe and the US reverse their nationalist and xenophobic drift? Is the West becoming belligerent?

The EU Commission by serving the banks offers poor support to European mainstream political parties

Energy: new target of 32% from renewables by 2030 agreed by MEPs and ministers

Asia-Pacific ‘regional parliament’ underway to advance equality, empowerment, for more than four billion citizens

Business leaders join UN to rev up sustainable development investments

If we don’t protect the ocean, humanitarian disaster awaits

“A sustainable economy, low-carbon, resource-efficient, resilient and more competitive on the global stage”, EU Commissioner Vella in a Sting Exclusive

DR Congo Ebola outbreak still an international public health concern

Farmers on the frontline in battle against drug-resistant microbes: UN health agency

The EU Commission implicates major banks in cartel cases, threatens with devastating fines

Why the most important tool in healthcare is trust

Abu Dhabi is investing $250 million in tech start-ups

ILO’s Bureau for Employers´Activities to publish new study on women in business and management

Technophobe or technophile? We need more conversation about digital transformation

Migration crisis, a human crisis after all

Governments need to honour their climate pledges as risks grow

Subsidiarity and Proportionality: Task Force presents recommendations on a new way of working to President Juncker

Brexit: Six more months of political paralysis or a May-Corbyn compromise?

Political solution ‘long overdue’ to protect the children of eastern Ukraine

Digital IDs and the Digital Economy: the (still) missing link?

Protecting farmers and quality products: vote on EU farm policy reform plans

Aid teams respond to escalating southwest Syria conflict: 750,000 civilians are at risk

RescEU: MEPs vote to upgrade EU civil protection capacity

In Washington D.C., Guterres signs pact with World Bank, meets US President Trump

Commission issues guidance on the participation of third country bidders in the EU procurement market

Here are six bold ideas to accelerate sustainable energy innovation

Russia can no longer be considered a ‘strategic partner’, say MEPs

Parliament seals 2014 EU budget and the spending ceiling until 2020

‘Fire-fighting approach’ to humanitarian aid ‘not sustainable’: Deputy UN chief

Main results of Environment Council of 09 October 2018

A Valentine’s Special: we can never overdose on love

iSting: Change Europe with your Writing

Just 24% of news sources are women. Here’s why that’s a problem

More Stings?

Speak your Mind Here

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

You are commenting using your 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