VINACHEM

The Eurozone crisis has beenquiet since the summer of 2012, as the markets waited for the German election. But now this has occurred,it is unlikely that the problem can continue to be ignored.

It is easy to forget the dramaof May 2012, when the blog correctly forecast a crisis was about to occur in the PIIGS countries (Portugal, Italy,Ireland, Greece, Spain). Its view went mainstream in June, when major debt write-offs thentook place in Greece, Ireland and Portugal. Total meltdown was onlyavoided when the European Central Bank (ECB) promised to ‘do whatever it takes’to save the euro.

Luckily for the ECB, the meaning ofthis empty promise has not yet been truly tested by the markets. Instead,the issue has been ‘on hold’ as investors preferred instead to believethat the new German government would quickly provide the necessary financialsupport, once the “detail” of September’s election was out of the way.

But the blog stopped believing infairy tales a long time ago. So it is time to again review theloan position with the PIIGS, using latest data from the Bank for International Settlements (BIS), the central bankers’ bank. This shows:

• Total loans to the PIIGS have further reduced, and were down 45% in March versus 2009
• Greece is down 82%, Spain down 47%, Portugal down 44%, Ireland down 43%, Italy down 38%
• As a percentage of GDP, the decline is quite frightening, equal to 30% of the PIIGS’ total economy
• The loan decline is 100% of Ireland’s GDP, 60% of Greece’s, 48% of Portugal’s, 27% of Spain’s, 18% of Italy’s

Now the election is over, the fairytale will probably end. And as the former BIS economic adviser, WilliamWhite, warned a year ago, “risks are surely building up“.

Of course, investors were happy totake the free money from the central banks and speculate with it in oil and other markets. But this did not solve the core Eurozone problem, which is that it needsfull economic and political union if it is to survive. A common currencysimply cannot work without these, as German Chancellor Kohl and FrenchPresident Mitterand agreed in 1990 when agreeing to launch the euro.

Equally it is naïve in the extremeto believe that German taxpayers will happily pay the bills for SouthernEurope. The German word for debt is, after all, Schuld – which also means guilt. And inGermany the Eurozone debate is a morality play, where those in debt are‘sinners’.