Curious how Europe's insolvent peripheral countries, where the government is increasingly the only source of demand (if not funding), have managed to avoid falling into a primary budget deficit abyss? Simple: instead of paying their outstanding bills, Europe's insolvent nations are simply not paying them. And with the entire European bond market now a central bank controlled policy mechanism, meaning there are no longer any checks and balances to keep governments honest, there is no pressure on said countries to actually pay. Hopefully those companies on the other end of these unpaid invoices have as generous a benefactor as the ECB to fund their now persistent and growing undercapitalization.
From the WSJ:
Overdue payments have long been a bigger problem in southern Europe than in the north. The debt crisis that has restricted lending to peripheral euro-zone governments is aggravating the problem, which is rising in Greece and Italy as well. Spain's crisis, set off by the collapse of a real estate boom nearly five years ago, is particularly acute in areas where declining revenue from real estate taxes pummeled municipal and regional finances.
Suppliers are depleting their cash reserves, forgoing investments and postponing payments to their own providers.
Many have dismissed workers, pushing up a national unemployment rate that exceeds 25%. A growing number are filing for bankruptcy—27% more through September of this year than in the same period in 2011, according to Spain's judiciary.
And the stunning graphic that shows why Europe is still #1 in football, and can kick the can the farthest of all: