November 16, 2010
Information just published by Eurostat (discussed here) suggests what we all already know. The government finances of the EU are in a right old mess (that is a technical term used in financial circles – other such terms include ‘buggered’ and ‘up s*%t creek without a paddle’).
The problem – to my mind at least – is not so much that there are economies in trouble, that has happened for as long as borrowing has been possible. (In fact in ‘This time is different‘ by Reinhart and Rogoff, they analyse roughly 800 years of debt default and restructing by governments – yes 800 years!). Instead, I think the problem is that they are being artificially saved to protect a political entity (the euro currency).
There has been a recent example of what this can lead to in the UK. The banking crisis lead to a quickly arranged marriage between HBOS and Lloyds TSB. For years, the markets (and bankers) had made fun of Lloyds TSB for being run ‘too conservatively’. It is hard to imagine that a bank could be ‘too conservative’, but there we are.
Anyway, when push came to shove, it was the conservative bank that had to step in and save the poorly run competitor. Lloyds Banking Group (as it is now known) has something in the ballpark of GBP 125 billion of government loans to save it. Yes, the rescuer needed rescuing!
Fast forward a couple of years and a few more eurozone bailouts and ponder the state of the German economy…
Or, take a look here at the Economist’s World Debt Clock. Thats where we ‘all‘ are right now – and it isn’t pretty.
Sooner or later, we all need to actually start paying this debt off…financialguy