Draghi Disaster: European Household Loans Plunge By Most On Record

Tyler Durden's picture


As anyone who has read our series on "Mario Draghi's Monetary Nightmare" knows well, the biggest problem Europe faces is not inflation (or rather deflation according to its Keynesian voodoo priests)but loan creation: nearly 6 years after the Lehman collapse, the monetary transmission mechanism i.e., loan-funded growth in Europe continues to be abysmal, mostly due to lack of credit demand, which in turn means that any attempt by Draghi to unclog Europe's monetary pipeline via NIRP, QE, or what have you, is set to fail. It also explains why the latest TLTRO expansion by the ECB (if it ever actually takes place of course: recall Europe's OMT program still does not officially exist) has and will achieve nothing for the real economy but certainly has boosted carry trades into overdrive leading to record lows for all peripheral bond yields.

Alas, today's ECB update on Monetary Developments in the Euro Area was as grim as always, with the all important series of Loans to the private sector sliding once again by 2.0% Y/Y, worse even than April's -1.8% contraction, driven by a €43 billion collapse in loans to households. This happened even as the now largely meaningless M3 rose by 1.0%, an increase to April's 0.7% Y/Y change.

In other words, Europe is in bad a shape as pretty much ever, and loan creation is just fractions above its all time low print of -2.3% from late 2013.


But that's just part of the story, the part that we have long said will not change until there is dramatic debt destruction in Europe, and until the trillion or so in bad loans parked at Europe's banks are somehow alleviated.

Where things get really messy is when one looks at the actual components of the contraction. As Goldman explains, "Euro area bank lending to non-financial corporations (NFCs) fell by €7.6bn in May, after a €6.3bn contraction in April. Lending rose in France and declined in Spain and Italy, while it was roughly unchanged in Germany. There was a significant decline in lending to households for house purchase related to sales and securitisation. Broad money growth rose from +0.7%yoy to +1.0%yoy, stronger than expected (Cons; +0.8%yoy)."

Lending to non-financial corporations, on a seasonally adjusted basis, declined by €7.6bn in May, after a €6.3bn fall in April. The decline was smaller (at €4.5bn) when adjusted for securitisations and sales and broadly similar to the April figure. While this is still clearly disappointing, the rate of decline in bank lending to NFCs has eased somewhat over the past year.

So far so good. But here is the punchline, and proof that anything the ECB can and will try to do, will be a complete disaster: Loans to households fell by €42.8bn (its largest decline on record), having risen by €5.1bn in April. This was mainly related to lending for house purchases (which do not count towards banks' allotment in the TLTRO) and reflects sales and securitisation (when adjusted for this, lending to households rose €3bn, similar to the April figure).

The decline (on the unadjusted figures) was located in France, the country which so far has avoided any of the market wrath associated with its disastrous economic policies.

It wasn't just France: by country, the largest decline in lending to NFCs occurred in Italy and Spain, where bank lending dynamics remain weak, with a further fall of €5.1bn and €3.0bn respectively (on our own seasonal adjustment). Lending volumes were roughly unchanged in Germany, while there was a €3.7bn rise in lending in France. The stock of loans outstanding has contracted by over 30% in Spain and by over 8% in Italy since July 2011.

In short, not only is Draghi's nightmare about to spillover into the real world - because a complete collapse in household loan formation in Europe's second "best" economy clearly spells out some nasty four letter words - but the ECB disaster is just waiting to unfold. It also means that as the ECB scrambles to figure out next steps, it will stop at nothing to prove that the BIS concerns about central banker idiocy were full deserved, and we expect Frankfurt to launch QE in the coming months even though European private sector clearly has no excess collateral which the ECB can monetize, considering the vast majority of debt parked at various European banks is already collateralized at the ECB as is.

Of course, it is only when one is cornered and has no way are the most idiotic decisions possible made. Which is why we can't wait for the ECB's reaction function to this latest abysmal data print, popcorn in hand.

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Mon, 06/30/2014 - 09:42 | 4909312 Headbanger
Headbanger's picture

Starve the beast!

Mon, 06/30/2014 - 09:59 | 4909357 NoDebt
NoDebt's picture

Ah, I have identified the problem.  M3 money supply growth is too low to sustain an upward trajectory in lending.  They should print more if they want to get out of this malaise.

I'll be having that cookie now.

Mon, 06/30/2014 - 10:21 | 4909412 Captain Obvious.
Captain Obvious.'s picture

Is it a Special cookie?

I think I will have one too.

Mon, 06/30/2014 - 10:25 | 4909423 Stackers
Stackers's picture

Maybe they should apply NIRP to consumer loans and start paying people to borrow money ? That'll get inflation moving in the right direction !

Mon, 06/30/2014 - 10:39 | 4909454 Debugas
Debugas's picture

this is called socialism!!! Ain't gonna happen

Mon, 06/30/2014 - 11:11 | 4909569 gatorengineer
gatorengineer's picture

You do realize Merkel is from East Germany right?

Mon, 06/30/2014 - 11:20 | 4909592 Tabarnaque
Tabarnaque's picture

I don't know where she is from but I know where she is going. That bitch is going to Hell.

Mon, 06/30/2014 - 11:20 | 4909586 Tabarnaque
Tabarnaque's picture

Europeans should learn how to increase tuition fees at warp speed and then create trillons in student loans. Sub-prime car loans would be good too! Then everything would be fixed and the algos could at last return to pumping up equity markets to the moon and beyond...

Mon, 06/30/2014 - 10:21 | 4909414 Chris Jusset
Chris Jusset's picture

The solution is obvious: Draghi needs to implement a "Negative Interest Rate Policy" (NIRP) ... OH WAIT, he already did this ! ! ! ...

Mon, 06/30/2014 - 11:17 | 4909581 gatorengineer
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Next step is Positive Loan Origination Program, (PLOP) where they pay the banks write subprime loans, the followon will be  Write-off Insolvent Paper Enterprises (WIPE), and lastly is Foreclosed Loans Under State Hegemony (FLUSH), where they nationalize everything that has failed.

Mon, 06/30/2014 - 10:01 | 4909359 Ghordius
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or just adjustment. to the new monetary reality. which still resembles a gold-backed monetary environment (of slightly deflationary nature, in the 19th century)

it strikes me as hilarious how households and companies getting less in debt, or even repaying debts is seen as a "Draghi Disaster"

except if you live in Dr. Krugman's "break that window, it's growth" bizzarro world, where it's "gimme growth or gimme death!"

Mon, 06/30/2014 - 10:04 | 4909365 LawsofPhysics
LawsofPhysics's picture

Considering the availability of information today, it still amazes me that people still believe in the infinite growth meme in a closed system with finite resources.

Good luck with that.

Mon, 06/30/2014 - 10:08 | 4909374 NoDebt
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Measured in "real" terms, it would be tough.  Measured in nominal terms, easy peezie.

Mon, 06/30/2014 - 10:23 | 4909420 Caviar Emptor
Caviar Emptor's picture

Yes! Loaf of bread costing $20 means growth! Growth of money is only 1 way to view it...

Mon, 06/30/2014 - 10:10 | 4909381 i_call_you_my_base
i_call_you_my_base's picture

"except if you live in Dr. Krugman's "break that window, it's growth" bizzarro world"

And we all do. The system is built on that premise.

Mon, 06/30/2014 - 10:12 | 4909389 taraxias
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+ 1000

Mon, 06/30/2014 - 10:25 | 4909427 LawsofPhysics
LawsofPhysics's picture

Bullshit.  What percentage of the world lives on less than $1 per day again?

You also need to talk to people homesteading, and there are many.


Mon, 06/30/2014 - 10:21 | 4909411 Oldwood
Oldwood's picture

Agreed, but I'm not an economist. Logic would suggest that if people are not borrowing more, then maybe they are actually paying off existing loans which might help the over leveraged economy. But that may be more delusional thinking, as it assumes that people are actually earning and paying bills. It is just as possible that they are sitting quietly in their 400sqft apartments waiting on the government check to arrive. Not making enough to qualify for even sub-prime and not motivated enough to try.

If there is anything that is bankrupt, broken or just plain fucked, it is the human spirit, the will to actually compete, bust ass or do what it takes. That has all been relegated to the top 1% and of those the top .01% are the only ones "winning", dividing the spoils of a dying society.

Mon, 06/30/2014 - 10:50 | 4909501 Fix-ItSilly
Fix-ItSilly's picture

Your logic is misplaced.  The banks have liabilities that are too large - think "deposits".

In the 19th century, bank leverage was less.  Deposits better correlated to real wealth and not Central Bank liabilities.

Think "Cyprus"... 

Mon, 06/30/2014 - 12:04 | 4909775 Tabarnaque
Tabarnaque's picture


Have a look at this video and you'll understand why. In a debt base monetary system, there can be no economic growth without a credit expansion.

Money as Debt


Mon, 06/30/2014 - 10:56 | 4909522 doctor10
doctor10's picture

looks like the Eurodweebs are trying to crawl out from under the thumb of Baron Rothschild. Better watch out cause some clever central bankerz will arrange to have them at one another's throats again if it looks like there's potential for success.

Mon, 06/30/2014 - 09:44 | 4909315 wmbz
wmbz's picture

This is good news!

Mon, 06/30/2014 - 09:54 | 4909320 Son of Captain Nemo
Son of Captain Nemo's picture

Speaking of disasters...

The same guy that was instrumental in making the wholesale destruction of the Middle East a complete success has a new job selling the "Amero"!

What could possibly go wrong?!!!

There's a robot in your future!!!!

Mon, 06/30/2014 - 10:53 | 4909441 Cthonic
Cthonic's picture

We have de facto merger with Mexico/Central America what with our open southern border, expect the same on the northern end; lebensraum por el nuevo Reich...  wouldn't surprise me if they incorporate UK, Australia, Iceland and the Caribbean while they're at it.  Nous hablamos franspanglais?

Mon, 06/30/2014 - 11:39 | 4909663 Son of Captain Nemo
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Mon, 06/30/2014 - 11:28 | 4909620 doctor10
doctor10's picture

They've got something nasty on him!!

Looks as though the bankerz intend to "spread the misery" by inviting our little friends from south of the border to "participate" in American indebtiude/servitude as it becomes obvious the average american joe isn't good for ver ymuch of it presently.


Weren't a whole bunch of chillren just invited across the border for just this?

Mon, 06/30/2014 - 11:44 | 4909676 Son of Captain Nemo
Son of Captain Nemo's picture

To your point.  This from CBS.

They are so blatant now after "Fed Biz" came out with this RFP in January, and you still can't hear even a "mouse fart" over it... Where is the outrage?



Mon, 06/30/2014 - 09:51 | 4909327 Cognitive Dissonance
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I see London, I see France. I see the central banker's under pants.

Mon, 06/30/2014 - 09:51 | 4909331 Caviar Emptor
Caviar Emptor's picture

It can end with a whimper

Mon, 06/30/2014 - 09:54 | 4909338 Kina
Kina's picture

Got money in a Europeane bank still?

times ticking away....


Mon, 06/30/2014 - 09:55 | 4909340 ghostzapper
ghostzapper's picture

Just as the PDs are swapping spit with their respective algos flipping stawks back and forth to each other all day, it appears as though we'll pass the baton of both verbal and literal QE to the ECB to see if that can kick the can any further until the Fed comes back with a verbal and literal untaper (doubtful they ever had literal taper). 

I'm all ears as to what event(s) will finally cause this thing to implode as I can't pinpoint it myself.  Can they really keep this parachute drifting and drifting?  if so by the time it crashes we'll be well on our way into a system built on BTC. 

Mon, 06/30/2014 - 09:59 | 4909354 astoriajoe
astoriajoe's picture

Its like they keep digging a deeper and deeper hole so that the parachuter never lands.

Mon, 06/30/2014 - 10:19 | 4909403 ghostzapper
ghostzapper's picture

Good way of putting it.  I've felt all along they know it's going down they are just trying to see if they can let her down easy and allow time for other options to evolve and develop. 

Mon, 06/30/2014 - 09:56 | 4909341 sidiji
sidiji's picture

more easing imminent, should be good for stocks

Mon, 06/30/2014 - 09:56 | 4909342 intric8
intric8's picture


Mon, 06/30/2014 - 10:04 | 4909364 Ghordius
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you mean the eurozone. Carney is cheerfully steering the BoE in a different direction, while warning about the housing bubble in Greater London

Mon, 06/30/2014 - 10:01 | 4909358 Dr. Engali
Dr. Engali's picture

The solution is simple.... keep doing moar of the same expecting a different outcome.


Hey, I think there is a definition in there somewhere.

Mon, 06/30/2014 - 10:09 | 4909380 Ghordius
Ghordius's picture

that would be Einstein's definition of madness

yet it's now what? the third year we are reading of megabank's expectations of the ECB embarking in full QE mode?

meanwhile the French, the Italians, the Spaniards are doing less of "the same", aka getting in debt

Mon, 06/30/2014 - 10:25 | 4909426 Dr. Engali
Dr. Engali's picture

They are doing less of the same because there are no jobs to be had to qualify for a loan in the first place.

Mon, 06/30/2014 - 11:14 | 4909575 TBT or not TBT
TBT or not TBT's picture

And their demographics are dismal.   You don't need more housing, infrastructure, school buildings etc for a population with low and declining youth population.  They do need more hospice services.  This is the end point of socialism, a materialism that dismisses the family forming spiritual animal we are in favor of a hedonistic dependent individual beholden to the state.  

Mon, 06/30/2014 - 10:07 | 4909373 smacker
smacker's picture

I see the moment of EZ-wide savings deposit theft on the horizon ...Cyprus was the test bed.

Mon, 06/30/2014 - 10:11 | 4909383 khakuda
khakuda's picture

We are screwed until these guys are booted out and replaced with people who let the markets heal themselves.  All they are doing is delaying recovery and causing asset bubbles.

Mon, 06/30/2014 - 10:24 | 4909419 smacker
smacker's picture

Agree 100%. They disagree 100%.

The lunatics have taken over the asylum.

Mon, 06/30/2014 - 10:12 | 4909388 NoTTD
NoTTD's picture

Let's get right to the important question:  What was the  weather like in France last month?


Almost forgot:  Bullish!!!

Mon, 06/30/2014 - 11:17 | 4909582 TBT or not TBT
TBT or not TBT's picture

The political weather, nay, the political climate in France has been tough on property rights, so who would buy any?  

Mon, 06/30/2014 - 10:48 | 4909490 toros
toros's picture

The EU needs to raise taxes to get the economy going.

Mon, 06/30/2014 - 11:01 | 4909534 orangegeek
orangegeek's picture

and double all retail prices - that will help as well

Mon, 06/30/2014 - 11:19 | 4909585 gatorengineer
gatorengineer's picture

EU simply needs to boost immigration to stimulate demand.....  They have a brown peoples issue as well....

Mon, 06/30/2014 - 13:18 | 4910181 Fuh Querada
Fuh Querada's picture

Yeah but Jim Ricktards says Chinese capital is flooding into EU and BMW will build a factory on Lesbos to employ Greek youth at 2€ an hour.

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