Europe's Real Borrowing Costs

Tyler Durden's picture

Just what Europe needs... more QE... this is the real problem - not only is demand for credit weak in the periphery as the balance sheet recession rolls on, but "real" borrowing costs are at near-record highs... Despite Draghi's earlier comments and promises, cramming SME loans down the throats of borrowers at suppressed risks will do nothing but kill bank balance sheets (most critically the ECB's)...


These are "market" rates... i.e. what real risk is being priced at away from the hand of Draghi...

Chart: BofA

As Dr. Constantin Gurdgiev notes,

In summary, real cost of capital across the euro area 'periphery' shows one simple thing: investment is still a very costly proposition for businesses, especially compared to the pre-crisis period.



 Two points:

  • Current capital cost levels are consistent with crisis peak 
  • Capital today is as expensive in real terms as in the pre-euro era.
Which means that Spanish real cost of capital is now as bad as in the pre-euro period and is much worse than during the credit boom of the late 1990s-early 2000s.

 Two points:

  • Just as in Spain, real capital costs in Italy are comparable with peak of the crisis and 
  • Capital costs today are more expensive than in the 2000s, but less expensive than in pre-euro era.
Italy's overall real cost of capital is currently comparable to the one observed in the late 1990s, and is higher than the one experienced in the credit expansion period of the early 2000s. That said, the cost uplift on 2000s is relatively moderate.

Two points:
  • Capital costs today is below the peak levels of the crisis in real terms, but is severely elevated relative to 2000s and on-par with pre-euro era costs;
  • Capital cost volatility is high and it was high during the entire euro era.
Thus, Portugal's real cost of capital is highly volatile, but on average is higher today than in the entire period from 1997 through 2010.
Worse, it is now as expensive than (or comparable to) the cost averages for the pre-euro area period.

*  *  *

The above puts stark contrast between the cost of funding the banks (low) and Governments (historically low today) and real businesses (high).

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ekm1's picture

Let me repeat this again and I will keep repeating it:






It is impossible to fix the economy by manipulating the legal system when the real issue right now is shortage of energy

zorba THE GREEK's picture

EUROPE... stick a fork in is done [ finished ]


Publicus's picture

What borrow cost? Just print, there is no cost.

ThroxxOfVron's picture

I cannot quantify whether or not there is actually a shortage of energy.

I cannot quantify whether or not money is even a legal claim on capital as I can no longer quantify what is legal and what is not -thereby rendering your assertion open to conjecture as the basis of legality and the function(ality) of the legal system itself is open to conjecture.

That said, I find your commentary to be refreshingly highly intelligent and thoughtful.

Until I am informed of or devise myself a better standard of what money IS, I will continue to state that it is my current belief that money = available calories.  

Not promises, not paper coupons, not digits in a computer, not public opinion, not polling data, not legislation, not judicial verdict, not executive order, not papal decree, not royal edict; -ONLY AVAILABLE CALORIES ARE MONEY.


That said; I ususally find very little to disagree with in what I've read of your posts, ekm1; and I often find the discussion imaginative and informed.

Let Us try to continue to engage each other thoughtfully...

ekm1's picture

Thank you


Calories are the collateral

They are measured by kkal and traded in money/kkal


Farmland is the collateral

It is measured by sqft and valued in money/sqft


Grain is the collateral

It is measured by tons and money/ton


A legal system needed to allocate CLAIMS ON COLLATERAL

Hence, money is basically a legal system to allocate property

ThroxxOfVron's picture

"Calories are the collateral

They are measured by kkal and traded in money/kkal"


Then it should become rather obvious what a reserve currency should most reasonably be backed by; -and it isn't gold or silver...


"A legal system needed to allocate CLAIMS ON COLLATERAL

Hence, money is basically a legal system to allocate property"


IF this is accepted then it also becomes obvious why a transparent, rational and functional legal system should be of nearly as much importance as plentiful energy as it is a derivative prerequisite of the energy transmission mechanism/money for maintaining economic processes.

The mismanagement of the monetary system and the corruption of the associated legal system are impeding the function of the monetary transmission system and the proper allocation of property.


Yen Cross's picture

 EKM , I've read your posts, and been quiet. You haven't the slightest CLUE about how money/currency/credit> flows.

  Fonz teases you. I'm going to be honest. The global banking system is corrupt beyond belief.

  There aren't/isn't a group of "100" calling the shots EKM! Instead of conjecture/ I challenge you to a "trade off" EKM.

   do you accept my suggestion EKM?

ekm1's picture

no YC, I don't

I appreciate the crude honesty.


I will "trade off" if people continue with warmonger and jew and stuff like that, though

Ignore my posts YC, you can handle that.

Yen Cross's picture

 No escape my friend! I do my due diligence "religiously"...  Do you accept my trade off ?

  I've listened to your babble for too long! Show me the FIAT!

fonzannoon's picture


I don't mean to tease. i meant every post in good faith. i have people email me Y/C. People who follow ZH and don't post. they say that they have never seen anyone so dogmatic. I understand everyones right to their opinion etc and that we will never know for sure etc. But ekm, like all of us, hafe to acknowledge that we could be wrong, and the less odds you place on being wrong the more of a percentage chance you are wrong.

ekm is a good dude. a solid person, i really believe that. but good on you yen for calling it out there.

ekm1's picture

Thanks for the crude honesty Fonz

Just ignore my posts, it is that simple

fonzannoon's picture

I would but you post it on every goddamn thread :)

why can't you just be generally negaive and mostly sarcastic and lack original thought like me?

ekm1's picture

Oh, I can stop. I have no issues with it, if most people want me to. I'll quit again. 

No problem at all

fonzannoon's picture

no one is saying you have to quit. just mix in some fart jokes. here, i'll start with one from my 4yr old. what did the crab say to the lobster that would not share his lunch?

don't be so shellfish.

ekm1's picture

I'm here to discuss serious stuff.

I highly respect Zerohedge.


If discussion is not enriching, then there is no point.

I find a lot of posts, including yours, quite enriching.

fonzannoon's picture

ekm...look around my man. simon black, michael snyder etc etc. this place is not what it was. this sounds like an insult but the reality is the S&P has forced zh to go to KWN and now to whatever the doom porn of the week is while we all sit here and root on manboobs over there in Russia to come save us.

we have all been searching for that next watering hole but it does not exist, and in all seriousness this could go on for a helluva lot longer than you seem to be able to consider. 

This is a fucked up world ekm and we could be here for a while. so the fart jokes help.

ekm1's picture


One week off as of now.

Let's see what happens.


Crude honesty very much appreciated

fonzannoon's picture

I will take a week off with you. we both could use it.

Yen Cross's picture

   EKM, "It's better to keep your mouth shut and look like a retard, then open it and remove all doubt"!

ekm1's picture

Question for you YC


Why don't you just ignore my posts?

What does it matter?


You don't read all posts here

Yen Cross's picture

 Tyler, may not post this comment EKM.  I know, based on your comments, that you've had a hard life in another continent.

 It's not my intention to 'misunderstand' you in any way. We've all experienced our own, " trials & tribulations".

 I'd be your first advocate for Z/H reinstatement! :-D

  Trading "isn't" about hunches EKM/

  Zero hedge isn't a TV show! It's about hard working individuals trying to make ends meet!

ekm1's picture

I'll take one week off YC

If I come back commenting, just ignore my posts.

I am not worth it

ekm1's picture

I may actually quit.

There is no much interest I guess, for serius conversation.

fonzannoon's picture

people disagree with you. people are trying to get you to consider that you could be either wrong, or extremely off in your timing. if that means people don't have much interest in serious conversation than it is what it is.

don't be so shellfish.

ThroxxOfVron's picture

Fuck this challenge bullshit.  

Who can aquire the most loot is a pretty shitty pissing match to challenge another person to engage in. That is the kind of Wolf of Wall St./Duke Brothers shit we are supposed to be figuring out how to stamp out.

You want a real challenge: How about we all actually meet each other somewhere and punch each other in the face to prepare ourselves for killing the assholes that have made this mess.  

Competition to discover who is better at carry/inside trade games is more of what this place is supposed to stand against.

It's time to make soap.



ekm1's picture

It is almost a mystery.

There are hundreds of posters here.

Why me?

Who cares about what I post?

AGoldhamster's picture

Possibly some feel remembered on her spouse/husband - repeating all the time the same content. Day in day out. And it's useless to try to stop her or to ignore her - she just continues to repeat like clockwork ...

Also a newpaper always telling the same stuff at some point will loose it's readers.

So friendly hint: either tell us something new and interesting and we are ALL ears - or else try to control your Ego - otherwise don't be surprised if your ZH-readers at some point are gonna loose their patience.

ThroxxOfVron's picture

I have interest in a serious conversation.

I don't feel inhibited from telling a joke or throwing a punch; but, if the serious conversations aren't here this place is just as useless as a corner of Yahoo or the FedUpUSA section of TF.

Yen Cross's picture

 Are you effin kidding me Fonz? I can't wait to have some fun!

ekm1's picture

Yea, good point.

Consider it entertainment

Yen Cross's picture

 Do you accept my trading challenge EKM?

Everybodys All American's picture

I think that's a little harsh.

Stormtrooper's picture

Fiat currency is not capital.  Gold is money with no legal claims against it.  Fixed it for ya.

So Close's picture

Real aint real when centeral banks are printing money that is not real.

TeamDepends's picture

Voice of Homer Simpson: Kill bank balance sheets, eh?

Yen Cross's picture

 T-LTRO?  The ECB balance sheet vs the Fed. balance sheet ( Q-E) drawdown, should "technically" pound the Euro into oblivion!

  I started looking at reverse repos on a global scale/ The Fed. isn't buying Belgium!  European banks are rinsing excess reserves through Belgium, to ( Sterilize) their (PONZI PIIG's) bond buying!


  PLUS! The fed. has to answer for paying EXCESS reserve interest, on it's OWN lended momey!

 I could be Batshit Crazy though! The Fed. might raise rates?

 Here comes the drunk Hamptonites/

ThroxxOfVron's picture

The FED wrote interest rate swaps.  These swaps/derivatives do not appear anywhere on the balance sheet...  There is no public information as to which institutions and/or person these were sold to or what the conditions or provisions or durations are.  The Treasury Complex may already have been structurally bifurcated.  No public disclosure as to the exorcise of these options may be publicly made should these options/swaps come 'in the money' and or exorcised/cashed in...

IF THe FED cannot pay the swaps the responsibility may fall to the Untied States Treasury -particularly if in the event THe FED cannot pay/deliver.

I don't know if it is legal ( or if legalities matter where The FED is concerned ) for the swaps to contain provisions for payment in something other than U.S. Dollars/FRNs, such as gold, silver, Treasury Notes or foreign currencies...

Yen Cross's picture

 Do you even know the difference between swaps and reverse swaps?  Were you too busy smoking totum?

  You fucking clowns make me laugh! Scurry, you RATS!

ThroxxOfVron's picture

Here is a challenge for YOU, Yen Cross.

Why don't you enlighten us if you know exactly what was written and sold by The FED and to who it was sold?

I'm waiting for you or anyone else to refute or expound upon my assertion with some facts and charts.

Some people who come to ZeroHedge don't know what you know and some people know what you do not.  Those who wish to share their ideas and knowledge are the people I come here to interract with.  

I'm certain that there are those who have concluded that I am a fool who does not have a clue as to what is going on or how to profit from it; and I am as likely as the next to take the same view of others on occasion.  

We can have a few laughs and play rough with one another but in the end it is the conversation and exchange of ideas and information and techniques for surviving and profiting under our present perverse condition that make this space valuable.

FWIW, I am too interested in learning and conversing with other informed and/or thoughtful persons jsut because I didn't find out something the first time I ventured my information and ideas -and I am far too ornery to leave just becasue I'm told to by some egoist that cannot expand, instruct, clarify, or refute assertions made by mayslef and other posters..

I await your assertions, charts, links, and other pertainant information and obbservations concerning the FED swaptions and/or derivatives issuance...


ThroxxOfVron's picture

" No escape my friend! I do my due diligence "religiously"...  Do you accept my trade off ?

  I've listened to your babble for too long! Show me the FIAT!" -Yen Cross



AdvancingTime's picture

Both people and governments have lived beyond their means by taking on debt they cannot repay. Over the last several decades we have created entitlement societies built on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were made on the assumption that the advantages we enjoyed would continue.

Ever greater prosperity and entitlements were to be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about evermore growth. Now reality has begun to come into focus and it is becoming apparent that this is unsustainable. The entitlements and promises that have piled up have become overwhelming. More on why this system will fail in the article below.

smacker's picture

"Now reality has begun to come into focus and it is becoming apparent that this is unsustainable."

It is not a new reality to me. I saw this happening before 2007 and when the crash came, I expressed my view that this financial mess would take a generation to recover from. It looks like I'm on the way to being proved right because I see no real growth happening, just a few narrow market sector/asset value manufactured bubbles.

That said, I totally agree with the gist of these comments. As I have also said, there probably hasn't been much in the way of genuine GDP growth for a generation. The black hole between that stark truth and peoples' expectations of rising prosperity has been filled with ever more debt. Enter the almighty great financial crash of 2007-8.

Yen Cross's picture

 Lmao/ I suggested that I would underwrite EKM back to Zero Hedge, and still challanged his trading prowess.


wiesenda's picture

The high real interest rate of loans to NFCs in the Eurozone periphery is precisely what is economically justified and should therefore be expected and accepted. 

Since the Eurozone economy is in a period of cross-border integration and since the unit of account has changed to a single hard currency, customary aggregates have lost their meaning - you have to look at what's going on at the micro-economic level. 

If a company is able to compete internationally, its real borrowing costs are nowhere near what is shown in the graphs because its sales prices will not suffer the deflationary development of the local economy. If nominal rates are still higher than in, say, Germany, the company will on the upside benefit from the falling input costs, e.g. in the form of lower labor rates. 

So what is going on below the surface is a stregthening of companies small and large that are able to play at the international level.

Where governments won't blunder with the needed supply-side reforms, the peripheral economies will be much better integrated and stronger on a fundamental level rather than on a simply credit-fueled construction and consumption level as measured by GDP.

ThroxxOfVron's picture


"Wage-setting practices have changed during the prolonged period of deflation. Wages of regular employees tend to reflect labor market conditions only quite slowly,” he said. “Some kind of mechanism, a ‘visible’ hand, is necessary for wages to rise.

Part of such a mechanism is the central bank’s aggressive monetary easing, which includes an indication that it will take all steps necessary to return Japan’s inflation rate back up to 2% after two decades of falling prices and wages.

“The Bank of Japan’s price stability target can serve as a benchmark for firms’ wage setting,” Mr. Kuroda said.


Mr. Kuroda vowed to maintain Japan’s aggressive monetary-policy easing until the country reaches its 2% inflation target, which he said could happen as early as this fiscal year.

Mr. Kuroda said that once inflation starts moving higher, 10-year government bond rates around 0.5% will not be sustainable."


What do you think, Yen Cross?  Come share your wisdom.

Is the BoJ gonna simply continue to buy and monetize the stack, or is Japan gonna soak up any 'visible hand' imposed wage gains to pay down the bonds, or is the stack going to be defaulted?