Friday, June 29, 2012

Did the EU Summit… Actually Succeed?

Brad Plumer at WaPo correctly points out:
The European bailout funds don’t have unlimited resources. If they throw $125 billion at Spain’s banks and another couple hundred billion toward Italy, pretty soon they’ll be running low. The only entity with unlimited euros is the European Central Bank. And right now, there’s no talk of using the ECB to provide bailouts. Which means that this latest move might have just forestalled the crisis, rather than ending it permanently.
Plumer also shows how bad the situation is for EZ countries relative to the U.S.
To put this in perspective, the liabilities of the entire banking sector in the United States are “only” about 100 percent of U.S. GDP. That’s one reason, Barclay’s notes, why few people question the ability of the U.S. government to act as a “rescuer of last resort” if its banks fail. By contrast, the liabilities of the Spanish banking sector are about 300 percent of GDP. And the Spanish government doesn’t have endless resources the way the U.S. Federal Reserve does.  Here’s how Barclay’s sums it up: “[T]hat goes to the heart of the problem with Europe’s banks; simply put, they are much too big for their individual sovereigns to protect credibly.”
Here's a Plumer chart showing country by country eurozone bank liabilities as a % of GDP versus the U.S. and Canada. Note well that even "fiscally conservative" Germany's bank liabilities are 3x those of the U.S. bank liabilities relative to GDP.  


  1. I don't quite get it RW. What are you trying to say and what am I missing?

    Are you implying it is a success because it will either collapse or force the unification agenda?

    1. I think if you read the post carefully, Wenzel is saying that there has been no success here and that it is more kick the can down the road.

    2. My sarcasm meter had a pretty low reading so I didn't know where he was trying to go with this post. From what I can gather is this is unquestionably a 'kick the can down the road' measure.

      The headline didn't jive with the content. Perhaps the weekend is calling too loudly.