Why the EU Crisis Will Be Bigger and Worse Than 2008

Posted by aurelius77 on

As noted earlier today, the entire European banking and corporate system is over-burdened with debt.

Jagadeesh Gokhale of the Cato Institute puts the situation as the following, “The average EU country would need to have more than four times (434 percent) its current annual gross domestic product (GDP) in the bank today, earning interest at the government’s borrowing rate, in order to fund current policies indefinitely.”

Suffice to say, no EU country has that kind of money lying around.

Moreover, the argument that the ECB or Federal Reserve could stop this from happening is misguided. True, the Central Banks have managed to prop up the markets for several years now.

So what makes this time different?

Simple: the Crisis coming from Europe will be far, far larger in scope than anything the Fed or Central Banks have dealt with before.

Let me walk through each of these one at a time.

Regarding #1, we have several facts that we need to remember. They are:

  1. The European Banking system is over $46 trillion in size (nearly 3X total EU GDP).
  1. The European Central Bank’s (ECB) balance sheet is now nearly $4 trillion in size (larger than Germany’s economy and roughly 1/3 the size of the ENTIRE EU’s GDP). Aside from the inflationary and systemic risks this poses (the ECB is now leveraged at over 36 to 1).
  1. Over a quarter of the ECB’s balance sheet is PIIGS debt which the ECB will dump any and all losses from onto national Central Banks (read: Germany)

Full article: Why the EU Crisis Will Be Bigger and Worse Than 2008 (Zero Hedge)

Comments are closed.