Surprise, surprise: Germany, Netherlands and Italy have the biggest liability to gdp ratios in the EU
For some time now, many of us have been puzzled as to why some of the more vociferous members of Troika2 have been behaving as they are. In particular, there is conjecture about:
1. Why Berlin in particular engages in persistent lying about the negative financial taxpayer ramifications of Greek default and
2. Why they and most American media continue to the promote the myth of forced Grexit from the eurozone….which all pollsters agree is what most frightens the middle class Greek voter.
In previous Slogposts, I have tried to rationalise these odd behaviours as the classic means by which controlling bullies whip up Xenophobia among their own electorates, and create terror among the victim electorates. I’m sure this is a very real motivation among the eurogroupe, for it cannot allow any Resistance Contagion: once that begins, it is the end of their largely overrated power. But evidence is gradually emerging that far more selfish drivers are also in play.
At this link is an official EU release whose sole concern is the subject of ‘contingent liabilities’ entered into by EU member states. This is a subject which, in the UK context, I’ve been boffing on about since 2008: the difference between a Sovereign’s national debt, and its contingent liabilities can be massive. To take the case of Britain, such liabilities add one trillion pounds to all things for which no budgetary allowance has been made – either because of the usual lack of foresight, or grubby little deals that went round the democratic process. In the UK, the two biggest by far are illegally self-awarded Sir Humphrey pensions, and Gordon Brown’s off-piste screw-up with the private finance initiative.
To cut quickly to the Sun headline, the EU release in this instance contains some blockbuster facts….and adds another piece to the eurozone jigsaw of hypocritical mendacity.
Contingent liabilities are often referred to as Shadow Debt: if you’re lucky, they won’t become an eventuality. But as the EU table shows, given the parlous nature of the ezone banking sector, every one of the liabilities is a racing certainty.
We’ve all been asking why Germany ignored the EC bailin directive last week and bailed out a small Bavarian Bank. The answer is simple: not to do so would’ve been illegal under BundesRepublik law, because Berlin had promised so to do. On this basis, while at first sight German national debt is a ‘mere’ 70% of gdp, add the promises it has made to its banks, and the number comes in at a horrific 222%.
Not far behind comes the Netherlands with a similar ‘official’ national debt at 73% of gdp. But the contingent liabilities are 115%…making a pretty nasty mountain of 188%.
The Number One and Number Two top contingent liability millstones in the EU are – by miles – Germany and the Netherlands.
Now let me see…who are the two chaps working hardest to stop the Greeks and their contagious banks from going their own way? Why, none other than the German finance minister Wolfgang Schäuble, and the Dutch finance minister Jeroen René Victor Anton Dijsselbloem.
The third prong of Troika2 is of course the ECB’s Italian Mario Draghi. Without any contingencies at all, Italy’s national debt is 132.6% of gdp. Add its 45.5% of contingents, and this too adds up to 178.1% of gdp.
This makes Mario’s homeland Number Three contingent liability millstone in the EU.
So you see, its not exposure to bad debt Troika2 fears (because nobody’s responsible for that): it’s the internal guarantees they’ve given to banks who will fall by association once it becomes increasingly clear that there isn’t a safe bank anywhere in the ezone. Names like Deutsche Bank, Monte Del Peschei, Santander and Landesbank spring easily to mind, although I’m not entirely sure why.
Yet again, Frances Coppola has nailed this one with clinical accuracy in her latest piece on strained Austro-German relations at Forbes:
‘As I’ve noted elsewhere, the entire Austro-German banking system depends on a system of off-balance sheet sub-sovereign guarantees: if Austria overturns the guarantees of one of its provinces, how can any of the rest be trusted? Unsurprisingly, a swathe of court cases challenging both the Austrian authorities’ overturning of the Carinthian guarantees and its debt moratorium are being prepared.
But this goes beyond court cases. It strikes at the heart of the European Union, which above all depends on there being trust between member states. Greece has been roundly criticized for behavior that caused trust to break down, threatening to tear the union apart. And now it seems Austria may join Greece in the naughty corner….Amusingly, the architect of this “default”, Austrian Finance Minister Schelling, is critical of Greece. He says that Eurozone countries can’t trust Greece. No doubt Heta bondholders – and perhaps the German government – would say that they can’t trust Finance Minister Schelling.’
Oh dear. Just when we all thought blood was no longer thicker than water, it seems that “we’re all Europeans now” was just another load of old bollocks.
Earlier at The Slog: