Forget the PIIGS, the EU as a Whole is Insolvent

Phoenix Capital Research's picture


Europe is heading into a full-scale disaster.


You see, the debt problems in Europe are not simply related to Greece. They are SYSTEMIC. The below chart shows the official Debt to GDP ratios for the major players in Europe.



As you can see, even the more “solvent” countries like Germany and France are sporting Debt to GDP ratios of 75% and 84% respectively.


These numbers, while bad, don’t account for unfunded liabilities. And Europe is nothing if not steeped in unfunded liabilities.


Let’s consider Germany. According to Axel Weber, the head of Germany’s Central Bank, Germany is in fact sitting on a REAL Debt to GDP ratio of over 200%. This is Germany… with unfunded liabilities equal to over TWO times its current GDP.


To put the insanity of this into perspective, Weber’s claim is akin to Ben Bernanke going  on national TV and saying that the US actually owes more than $30 trillion and that the debt ceiling is in fact a joke.


What’s truly frightening about this is that Weber is most likely being conservative here. Jagadeesh Gokhale of the Cato Institute published a paper for EuroStat in 2009 claiming Germany’s unfunded liabilities are in fact closer to 418%.


And of course, Germany has yet to recapitalize its banks.


Indeed, by the German Institute for Economic Research’s OWN admission, German banks need 147 billion Euros’ worth of new capital.


To put this number into perspective TOTAL EQUITY at the top three banks in Germany is less than 100 billion Euros.


And this is GERMANY we’re talking about: the supposed rock-solid balance sheet of Europe. How bad do you think the other, less fiscally conservative EU members are?


Think BAD. As in systemic collapse bad.


Indeed, let’s consider TOTAL debt sitting on Financial Institutions’ balance sheets in Europe. The below chart shows this number for financial institutions in several major EU members relative to their country’s 2010 GDP.



Financial Institutions’ Gross Debt as a % of GDP

















EU as a whole


Source: IMF


As you can see, financial institutions in Germany, France, Italy, Spain, the UK, and Ireland are all ticking time bombs.


Indeed, taken as a whole, European financial institutions have more debt than Europe’s ENTIRE GDP.  Let’s compare the situation there to that in the US banking system.


Taken as a whole, the US banking system is leveraged at 13 to 1. Leverage levels at the TBTFs are much much higher… but when you add them in with the 8,100+ other banks in the US, total US bank leverage is 13 to 1.


The European banking system as a whole is leveraged at nearly twice this at over 26 to 1. That’s the ENTIRE European Banking system leveraged at near Lehman levels (Lehman was 30 to 1 when it collapsed).


To put this into perspective, with a leverage level of 26 to 1, you only need a 4% drop in asset prices to wipe out ALL capital. What are the odds that European bank assets fall 4% in value in the near future as the PIIGS continue to collapse?




These leverage levels alone position Europe for a full-scale banking collapse on par with Lehman Brothers. Again, I’m talking about Europe’s ENTIRE banking system collapsing.


This is not a question of “if,” it is a question of “when.” And it will very likely happen before the end of 2012.


The reason that this is guaranteed to happen before the end of 2012 is that a HUGE percentage of European bank debt needs to be rolled over by the end of 2012.



I trust at this point you are beginning to see why any expansion of the EFSF or additional European bailouts is ultimately pointless: Europe’s ENTIRE BANKING SYSTEM as a whole is insolvent. Even a 4-10% drop in asset prices would wipe out ALL equity at many European banks. 


On that note I believe we have at most a few months and possibly even as little as a few weeks to prepare for the next round of the EU Crisis. On that note, I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investments (both direct and backdoor) you can make to profit from it.

This report is 100% FREE. You can pick up a copy today at:


Good Investing!


Graham Summers


PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

And ALL of this is available for FREE under the OUR FREE REPORTS tab at:





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Grand Supercycle's picture

DOW weekly chart shows uncertain market & fluctuating consensus with likely bullish pattern contained within megaphone wedge.

Snakeeyes's picture

And Merv the Perv at the Bank of England wants to relax lending standards in Jolly old England. How well will THAT work?

Manipulism's picture

Axel Weber, the head of Germany’s Central Bank???????????????


You are out of time.

Jens Weidmann is head of Bndesbank.

Mr.Weber is a Fucking UBS Banker.

Triffin's picture

Oh Dear. Yet another another newsletter writer spewing half-truths and drivel. 

Gross national Debt? Ho Hum.

Gross Bank Debt to GDP? WTF is this guy smoking....small country with banks doing international banking. This asays nothing about risk or otherwise.   

High debt = Insolvency?  Ringing the alarm in the theatre while here is an asset-side to the equation conveniently ignored.

I won't even go the ad hominem route and wonder why he doesn't name his previous employer, mention other "team members",m if they exist at all. It sounds like a wishful dream one-man-band trying to swing above any actual accomplishments. 

Now if you want to look at something to be worried about in Europe, then look at the pay-as-you-go nature of pensions. It will make you go buy dollars in hurray given the headroom in the US with 1/3 fed debt owned by teh SS Trust Fund.


mjk0259's picture

No worse than Japan and US.

xcehn's picture

The scale of the looming reset will ensure the collapse of most people's wealth. That will probably translate into the end of the world for them, even as life goes on.

Marco's picture

The unfunded liability of future medical care and state pensions assuming benefits/taxes stay static is infinity ... anyone who puts any given number on it is being disingenious, or an idiot. These things are pay as you go and benefits can be adjusted downward at will, you can't put a number on it without putting a completely fucking arbitrary cutoff on the timespan you are going to sum up the difference between future expenses and the current tax base AND assuming benefits don't get reduced or taxes increased ...

Will benefits/taxes have to be adjusted for demographic change in the future? Of course ... and while both might be politically unpopular, both are happening now.

Anyone who seriously uses the term is a tool ...

onlineseo's picture

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Nachdenken's picture

The Great Collapse of the Eurozone has little to do with Banks, think Eurocrats

They have multiplied incredibly, each member nation has thousands of Eurocrats -  highly paid, full benefits, 80% pensions - not one of whom will lose this job.  The EU will be preserved at all costs, the Eurozone as well, and the dummies who pay will (as in Greece) will continue to elect the fleecers. The Banks and Bonds are Mittel zum Zweck, means to an end - Eurojob preservation.

poldark's picture

Alex Webber is not head of Germany's central bank. He retired May 2011.

Jack Sheet's picture

Yeah right, but Graham is not usually concerned with such minor factual details in his boulevard press contributions.. Like that Weber is now "president" of UBS and got a 4 million CHF signing-on bonus.

Joe A's picture

Please ZH stop making commercials for this website. How about US (external) debt to gdp ratio. 100%.

Btw, the real debt to gdp ratios are much bigger because when you designate guarantees to bailouts and you don't have that money lying somewhere on a shelve than that money becomes a debt.

Jack Sheet's picture

I haven't constructed any statistics but my impression is that on ZH the number of "analysts" talking Armageddon about the EU (mostly, as here, mixed up with the EUR currency zone) exceeds those analyzing the incomparably worse data from the US and UK by at least 5 to 1. Yes, yet another smoke screen from Manhattan and the City of London to divert attention from the real issues.
You have to ask 2 questions :
- how much gold does the UK have to back its worthless toilet paper GBP
- when will the black hole of zero treasury yields controlled by the JPM interest rate swaps implode (check out Jim Wiilie's web site)
This EU bashing mania is pure diversion. There are many other web sites that give the whole picture rather than using sensationalism to hawk a crap newsletter.

hedgehog9999's picture

To be clear a 4% reduction in asset prices would wipe all the banks capital. This assumes there is 0 printing and I think we know there will be excessive printing to counteract asset price reduction at the cost of a growing inflation and widespread reduction in the standard of leaving for the 99%.

So . a collpase will not happen but growing inflation will and further impoverishment for the masses......

Argentina , Mexico and others have been through this and the sky did not fall......

I am tired of hearing the sky is falling and a collapse is a few months away, heard this before in 2008 and here we are......

Once the S and P hits bottom in this downdraft it will soar along with gold and all commodities and the impoverishment cycle will accelerate.

pamriallc's picture

This is why European banks are taking the extraordinary step of rating their own collateral. This way they avoid having to sell on the USA rating agency downgrades. They are selling one another's debt to meet cash demands of their depositors currently, and at the same time need to roll over a ton of debt. This creates a problem when the reference price on bank debt (from the last sale) equates to a 15% yield and the same sister bank needs to roll over $100Bln EUD a week later. Going from 30X leverage to 5X leverage in another 6 months is going to be ridiculously painful. Difference was in the USA we had TARP at just 5% money and Europe is going to have 15% cost of money.

Big reason for USD strength is also huge demand for treasuries but not from money center banks..... From hedge funds who simply buy T30 and short an equivalent quantity of (insert European sovereign bond of same maturity) for a great spread trade. Rinse and repeat..... Japan.

sagdogalone's picture

What was the line again, about Bailout Ben admitting to US debt being 30 Trillion? Seems like it was what? 5-6 years ago one ex-chief economist from the GAO was on Real Time, and the joke was running out of digits on the debt clock. This fellow claimed the true debt to be 5-10 times the 10 trillion at that time. That was before Mr Bailout opened the free money window to every bank in his little world. They can't report it, because there isn't a name for that many zeros.

Savyindallas's picture

Thanks Graham -you're incredible!

andrewp111's picture

Nothing to worry about. The ECB can print their way out of it. It will only take about 100 trillion Euros.

Darth..Putter's picture

Just look at all the pretty horses at going into the glue factory.


Now all we need is more publicly condoned criminal activity.

cbaba's picture

Thank you Graham, its a very good article, clear and simple.

Arnold Ziffel's picture
Iceland Advances in EU Bid, Opens Talks in Three More Areas


This is almost like something out of The Onion! After all the gains Iceland made, they now want to give up their sovereignty....why?

Marco's picture

They already have to adopt EU legislation any way because they want to be part of the EU internal market ... as a full member they'll have some say over the laws.

Ghordius's picture

Have you asked some Icelanders? Perhaps they have a different opinion.

President Palin's picture

Don't do it.  You'll be sorry.

hivekiller's picture

Hey, it's all paper so it doesn't matter. Just burn the stuff and reboot. 

lasvegaspersona's picture

At the Conservative Leadership Conference here in Vegas a week ago, Orin Hatch acknowledged that with unfunded social programs  included the USA is about 78 Trillion in debt. He broke it down but left out Fannie and Freddie and probably significant other off balance sheet items....So at least one Senator sees the problem. I believe the dollar will simply be allowed to run its course without any real effort to save it. Things really are beyond saving and they do love to spend. Why mess things up? Just let it happen and then blame someone else.

JustObserving's picture

Richard Fisher of the Dallas Fed estimated that US unfunded liabilities were nearly $100 trillion in 2008.  So $78 trillion today seems quite a bit lower than other sources I can find.

"Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon."

Here is a link to his entire speech:

disabledvet's picture

Greece is not a problem "once Greece goes"...and it will. Then the problem is "sovereign number two"...whoever that may be (Finland?) that says "sorry, don't want to be a part of Club Euro." And then on from there. Obviously this isn't the end of the is an end to "a world" however...and you don't want to be a holder of anything denominated or BASED ON euros since once the EZ goes back to local currencies all that is based on the euro will be worth nothing. what is interesting to ponder is that the EZ will still be intact "sans currency" however. hmmm. "how do i pay for that now?" even more interestingly "what does that cost" since there could be some confusion as to "what money to use" and "not so much the price. for example "i want to buy that roll of film fine sir." and he would respond "that will be 6." and you would respond "of what?" and then i imagine you wold roll out a "sweaty wad of various national currencies and see which one he picks." and then "you'd have to think about that for a moment" because "each one has a different exchange rate and you wouldn't want to be getting ripped off here. and then maybe "he'd pick the good paper" and an argument/barter would assume over "the middle variant of purple paper" which may or may not....

Buck Johnson's picture

And look at the UK, they are having a defacto bank holiday with people not able to get into their accounts for at least 4 days and still having problems.  They said it was an IT issue, but I don't buy that.  The UK has been awfully quiet about it's debt and financial issues and remember they are very fast and loose with their banking rules.  So I bet soon we will find out alot about the UK having trouble.  Also if Italy is that high of a percentage (more so than Spain) then they should be getting ready to implode in a week or two.

Oracle of Kypseli's picture

The UK is holding the last two threads by their teeth until after the olympics. Same thing happened in China at 2008.

Jack Sheet's picture

Right. UK Government spending exceeds 50% of GDP
Total debt > 500 % of GDP
2 of Britain' s 4 major banks under state control
Economy shrank 0.2% in 1st quarter 2012
Balls- to - the-wall ZIRP by the B o E crushes savers

The UK is up shit creek in a barbed wire canoe without a paddle.

SwingForce's picture

Wrong, ask Mark Grant to update your figures.

JustObserving's picture

Jagadeesh Gokhale of the Cato Institute published a paper for EuroStat in 2009 claiming Germany’s unfunded liabilities are in fact closer to 418%.

And US unfunded liabilities are $119.4 trillion today which works out to be 770% generously assuming a US GDP of $15.5 trillion.

I might add that Dagong, the Chinese rating agency, claims that US GDP is under $6 trillion:

"Another part is the inflated value originated from credit innovation, which belongs to bubble value. In addition, due to the high economic financialization, more than half of the profits in the real economy come from the returns of financial activities. If we exclude the factor of virtual economy, the U.S. actual GDP is about 5 trillion U.S. dollars in 2009, per capita GDP about $ 15,000. "

Mark Noonan's picture

Wouldn't actually surprise me - of course, I also don't buy Chinese GDP numbers.  Or, indeed, any government most cases, they simply don't know the truth (I think we look at a lot of perfectly useless data points when sizing up the economic situation...concentrating way too much on Bankster BS rather than what the real, wealth-creating part of the economy is doing), but in other cases governments are deceiving themselves and the people.

El's picture

I'm getting a crick in my neck from looking up every time someone shouts "the sky is falling." I know it is bad...but the only information that would be helpful to me at this point is if you could tell me WHEN the sky is going to fall.

the tower's picture

It doesn't matter when, what matters is what will happen after the sky falls down.

At this moment the media - including this site - have taken the attitude of politicians: no-one is looking forward more than a week. In fact, they make it look like no-one knows what will happen, just so you stay glued to your screen of choice and therefore the advertising (and "free reports").

ANYONE could have seen this coming 10 years ago, and 5 years ago you should have taken positions, like any person with even a little bit of proper information did. If you still have to, you're too late. Period.

In a nutshell:

1. It will be bad when everything falls apart, but not as bad as most think. In fact, for many people it won't get much worse than things are now in terms of quality of life.

2. This crisis and its causes are not the real problem, and after this thing blows we will finally be able to work on the real issues: sustainability, energy, resources. 

3. As this is an investment blog here's what I won't have to write in a "free report" as it's only 3 points:

- high-tech (robots, energy, automation, construction, NOT consumer electronics, not even APPL)

- food/water

- pharma

4. Start a business, think "necessity": counter to popular belief, we will not enter a corporate future - corporations and banks are over from an investment point of view. Small business will be THE way to make a living. Necessity as in what people really NEED, not what you make them THINK they need. Kickstarter is the future of funding, not the DOW or NASDAQ.


The West lost 50+% of it's wealth. It's not visible yet, but it's gone and will never come back. Get used to it and think quality, not quantity. The next 20 years will be completely different. It will be the start of the new. In a way we need this crisis to say goodbye to the old, because it shows all which is wrong with it.

Hillbillyfreak's picture

If you are waiting for someone to tell you the time is "now" before you act to protect any wealth you may have, you will be hosed.  If you have an understanding of what a system implosion means, "when" wouldn't be important to you.      

El's picture

No, actually. I am not waiting for that. I got out a while back, even going so far as to cash out the 401k and put it all into physical. Sadly, Lake Erie claimed it all in a freak boating accident last summer.

While I do have at least the minimum amount of intelligence required to realize that the can could be kicked for some time to come, and that your guess would be as good as mine as to when it might happen, that is still the only useful information that could be provided to me in a "sky is falling" article. I already know it is falling.

JPM Hater001's picture

Fine. Sept. 21 Spain will take advantage of the weekend and declare default followed by the rest of the PIIGS.  A week later there will be an "odious debt" declared and then on the 29th I'm scheduled to have lunch with my mom.

Of course this is a guess so the best we can do is stay informed...

Although I think September 21 is a fine day for a collapse.  My one and only psychotic girlfriend's brithday was that day.

shovelhead's picture

She told me to say hello and shes sorry she boiled your rabbit.

Convolved Man's picture

Well it's settled then.



1. Print more Euros.

2. Print more Yen.

3. Print more Yaun.

4. Print more Dollars.

5. Print more of other fiat currencies.

6. Buy more gold.

7. Go to step 1.

OneTinSoldier66's picture

I got a really got a good chuckle out of this one Convolved Man. Thank you.


I will say that I kind of hoped for a deflationary collapse. I have come to realize that either way, inflationary, deflationary, global debt jubilee at the very end, paper monies are fooked and toast. Perhaps people will have more time by propping them up with printing. Extend and Pretend! I do know that when they are gone, I won't be able to say that I miss them.

XitSam's picture

<- I already know this, I read Zero Hedge.

<- First I heard about it