There Is One Problem With Europe's So-Called Austerity

The one most recurring laments coming out of peripheral European countries which boast near record youth unemployment, in most cases around the 50% area, is that the only reason why there is no growth is due to "evil austerity", imposed upon them by Germany and other frugal Northern Europe overseerers, who do not permit the rampant issuance of debt to fund domestic spending and fiscual stimulus programs.

There is one problem with that: the peripheral European countries are not only issuing debt at a pace that is well greater than the "pre-austerity" period...

... as Italian ANSA just confirmed:

Italy's public debt hit a new record high of 2.1945 trillion euros in April, up 10 billion euros on the previous high set in March, the Bank of Italy said on Monday. The data was used as ammunition by opposition parties against Premier Matteo Renzi's government. "Even though interest rates are down, the debt keeps going up vertiginously and it is threatening the stability of the public finances and of Italian people's savings," said Elvira Savino, an MP for Silvio Berlusconi's centre-right Forza Italia.

 

"Renzi has not just abandoned the young, condemning them to unemployment, but he is also jeopardizing the future of the next generations". Economy Minister Pier Carlo Padoan rubbished the criticism, saying it was normal for the debt to increase while Italy is running a budget deficit. "This thing about the debt record is really boring," he said.

Worse, the so-called structural reforms that these countries are implementing so they can escape from the dreaded austerity have resulted in debt to GDP ratios that, drumroll, have never been higher!

 

In the meantime, without any reform and without any actual changes, the bad debt keeps accumulating and as Italy's Banking Association reported earlier today, bad loans, aka NPLs, in the country's financial system rose by 15% from a year ago and hit a record high of €191.5 billion in April, up from the €189.5 billion reported in March, and a total of 10% of all Italian bank assets. One can imagine what the real, unadjusted number is if the reported one rose by €25 billion in one year.

So to summarize Europe's plight for the past 5 years: PIIGS creditors and the Troika will pretend to impose austerity on them (with the ECB as a guarantor and buyer of first and last resort), while the PIIGS will pretend to reform.

In the end, nothing has changed and the pre-crash status quo is still here with the only difference that relative and absolute debt levels have never been higher.

Or, as Italy's economy minister called it, "boring"... until such time as the Troika decided to yank its guarantees and the next Greece emerges. Only then does it get "exciting."