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Draghi's Monetary Nightmare Refuses To End As European Private Lending Remains Stuck At Record Low Levels

Tyler Durden's picture


With just released inflation figures out of Germany coming weaker than expected, Mario Draghi's monetary nightmare - how to spur credit creation in Europe to the private sector - just got even worse. Incidentally the topic of Draghi's "Monetary Nightmare" is well-known to regular readers and has been covered here extensively in the past, most recently here. So while we await to see how the ongoing deflation in Europe, soon hitting its core too, spreads through the system, the most recent data out of Europe is that lending to non-financial corporations declined once again in January, this time by €11.7billion, adjusted for securitizations and sales. On an annual basis, the decline in January was -2.0%, the same as December, and worse than the -1.8% in November as reported by the ECB.

The long-term chart is an absolute disaster.

Here is what SocGen has to say about it:

Money supply growth (M3) in the euro accelerated in January, from 1.0% to 1.2% yoy, still well below the ECB’s 4.5% reference target. The flow of credit to the private sector seems to have troughed, as it dropped by 2.0% yoy (adjusted for securitization and sales), unchanged from December. The release of today’s figures is not likely to affect the outcome of the March 6 ECB meeting, at which we do not expect fresh action. In fact, the latest soft and hard data published suggest that the ECB’s  scenario of a gradual recovery (1.1% GDP growth in 2014) is taking shape.


The flow of credit to the private sector (adjusted for securitization and sales) stopped decreasing in January, after a cumulative €45bn fall during the previous two months. The growth rate stood at -2.0% yoy, unchanged from December. Although credit flows seem to have reached a bottom, it is hard to distinguish a material improvement here.

Indeed it is, and it also means that Draghi continues to be in a no way out, since credit destruction is not bad enough to prompt much more easing, or certainly QE, and is not nearly good enough to stimulate any economic growth except net of GDP definition revisions.

Here is the breakdown by country on a three year basis:

And the Y/Y change in outstanding levels:

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Thu, 02/27/2014 - 09:26 | 4484030 williambanzai7
williambanzai7's picture

Hmmm, maybe he should try Chinese style shadow banking.

Thu, 02/27/2014 - 09:27 | 4484032 svayambhu108
svayambhu108's picture

Meanwhile this is our fate:


Thu, 02/27/2014 - 09:30 | 4484043 Fix-ItSilly
Fix-ItSilly's picture

With baby boomer demographics of an ever growing retirement bulge, household borrowings will be reducing for years.  What's the big deal here?  It's natural...  but if the financial establishment didn't plan for this, they want someone else to hold the ball (sovereigns!).

Thu, 02/27/2014 - 09:36 | 4484057 hooligan2009
hooligan2009's picture

please please please please...

please please please please...

it is not deflation or recession to restructure from a country that is full of a bloated public sector into one that isn't.

the corrollary is that companies are throwing off jobs that only existed because of the overspending and debt creating public sector and into (hopefully, since nobody knows how or what private sector demand can be or should be without the leech like effect of a bloated public sector) a more "productive" private sector that actually improves living standards, pays taxes and retires the debt of the bloated public sector.

in other words, this is a move from socialism into capitalism-lite"ism".

countries that don't adopt this restructuring model eventually go broke spending other people's money, even China, the US and Japan.

Thu, 02/27/2014 - 09:37 | 4484065 Max Damage
Max Damage's picture

Why lend when you can gamble it all on stocks because the FED has everyones backs.....

Thu, 02/27/2014 - 09:41 | 4484076 buzzsaw99
buzzsaw99's picture

i doubt he gives a fuck at all

Thu, 02/27/2014 - 09:42 | 4484081 UselessEater
UselessEater's picture

across the channel lending is looking to be on the increase... then again maybe not:

Royal Bank of Scotland has lost all the money invested in it by the taxpayer six years ago when the lender came close to collapse.


Thu, 02/27/2014 - 09:45 | 4484093 Handful of Dust
Handful of Dust's picture

Part of the problem is loans are hard as heck to getover there. Ex: my buddy applied for a 20 million euro loan to study whether or not Breastfeeding is effective assit to green energy and the environment, and he was turned down.

Here, NIH and DC would have showered twice that on such an important contribution to science.



Thu, 02/27/2014 - 09:54 | 4484129 Iam Yue2
Iam Yue2's picture

The transmission mechanism is broken, because banks preferred bonds to loans; Draghi can do whathever it takes, but he is now shooting blanks.

Thu, 02/27/2014 - 09:55 | 4484136 Bearwagon
Bearwagon's picture

May I kindly remind all of us that there is no plan B. Period!

Thu, 02/27/2014 - 10:21 | 4484224 Bearwagon
Bearwagon's picture

We just have different perspectives: Plan A to plan Z are all one and the same, and indeed I ain't gonna like it!  ;-)

Thu, 02/27/2014 - 09:57 | 4484137 Cannon Fodder
Cannon Fodder's picture

Sorry for this stupid set of questions....

But why is "inflation" so important? It seems like TPTB want to target a certain inflation rate? Is that because it is easier to put people in debt in an inflationary period vs a deflationary period?

Why wouldn't deflation be good for the people?

Why do we have to create credit (debt)?

Thu, 02/27/2014 - 10:02 | 4484163 Bearwagon
Bearwagon's picture

Well, that are no stupid questions, and they call for long and elaborate answers. Let me give the easiest hint, by explaining why deflation won't be good: Deflation chokes investments because those are no longer encouraged while the money becomes more valuable all by itself. No investments mean no growth, and what that means should be clear ...   :-)

Thu, 02/27/2014 - 10:39 | 4484281 Fix-ItSilly
Fix-ItSilly's picture

You appear to have overdosed on force-fed Samuelson economics classes.  If what you wrote is true, how is it that one of the greatest investment periods in American and Western world history occured during deflationary times (latter 1800s)?

Just common sense says that to have a monetary policy that respects spenders and savers, one must have periods of inflation and deflation.  Otherwise, a monetary system won't be neutral and is at the whim not of the market but of the tyrant.

Thu, 02/27/2014 - 10:00 | 4484151 Spungo
Spungo's picture

Maybe they would lend the money out if interest rates were higher. Higher interest rates would also encourage people to keep their money in the bank instead of everyone trying to withdraw their money. 

Thu, 02/27/2014 - 10:49 | 4484307 NaiLib
NaiLib's picture

Thing is. Europeans simply do not have the income to support more leverage. They are taxed to death already. There is nothing left to take. EU has built up a copy of the old Soviet regime

Thu, 02/27/2014 - 11:57 | 4484667 WTF_247
WTF_247's picture

Hey Dummies in the EU and US - perhaps demand pull does not work anymore with loans.  Even at 0% people are not gonna take out loans they cannot pay back for the most part - that was already done in the 2002-2008 period.  No job security and falling wages does not make anyone want to get a loan.  Additionally why would banks want to loan out money when the return on that money is too low vs risk?

Why not raise rates back to 5%.  This will raise borrowing costs but also incentivize banks to loan because is actually worth it to do so.  Those with savings earn far more.

Oh yea - you have dug yourselves into such a huge hole that 5% would bankrupt the govt borrowing costs....  oh well.

Thu, 02/27/2014 - 12:33 | 4484859 elwind45
elwind45's picture

That would be asking the Fed to use the 100b. To buy old bond seconds nstead of giving it to the treasury to issue new ones?

Thu, 02/27/2014 - 12:26 | 4484818 elwind45
elwind45's picture

Quick get the English guy to say tout est calme in cockney

Thu, 02/27/2014 - 12:37 | 4484891 elwind45
elwind45's picture

Dode in the pool dode in the pool everyone get out-caddy shack

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