Debt Storm: Massive black hole in EU finances: Research uncovers the shadow EU liabilities and the threat they pose to global financial stability.
EU and Eurozone member states understated their debts at the end of 2021 by 44% of EU GDP and their total liabilities by 70%.
This represents a major risk to global financial stability, as the understatement causes shortfalls of capital and collateral at the financial institutions that do business with EU public sector entities, who are to be found inside and outside the EU. This conclusion is one of the main messages of the newly-released book The shadow liabilities of EU Member States, and the threat they pose to global financial stability, written by Bob Lyddon and published by The Bruges Group. Debts of around €6.4 trillion failed to be registered in the key measure tracked by Eurostat - ‘General government gross debt’. Eurostat’s statement of member state contingent liabilities was woefully adrift: they amounted to around €3.8 trillion and represented member states’ obligations to back the EU itself, other EU supranational entities, and – for Eurozone members - the European Central Bank. At year-end 2021 Eurostat recorded the EU’s ‘General government gross debt’ as €13.0 trillion, which was 90% of EU GDP of €14.5 trillion. EU public sector debt, including the shadow debts, was nearer to €19.4 trillion, or 134% of EU GDP. Including EU public sector contingent liabilities as well, the total liability rose to nearly €23.2 trillion, or 160% of GDP. Contingent liabilities are in the main guarantees, such as to pay in extra capital to the European Investment Bank should it be required, or to recapitalize the European Central Bank should it make losses on its programmes, in the same way that the UK taxpayer is exposed for up to £133 billion, according to Reuters, for the Bank of England unwinding its Quantitative Easing.
The additions mean that the Debt-to-GDP Ratios of individual member states were, for example, 298.4% in the case of Greece compared to Eurostat’s 193.3%. Italy’s was 222.6% rather than 150.8%. France’s rose from 112.9% to 147.5%. Germany’s was above the UK’s, going from 69.3% to 102.8%.
It was even worse when the contingent liabilities were factored in as well: Greece sat at 337.1%, Italy at 258.4%, France at 178.0% and Germany at 130.5%. These figures do not reflect the worst-case for member states should one or more of their number default: member states cross-guarantee one another in a variety of ways, such that the liabilities of the stronger member states are open to escalation beyond 130.5% for Germany and 178.0% for France. The euro currency is not just structurally weaker than it is made to appear, but the public sector of both Eurozone and non-Eurozone member states in the EU has much higher liabilities than Eurostat reports. This is a situation that will not be getting better given the programmes that the EU has approved, and it represents an unrecognized fissure in the global financial system.
For this article in pdf, please click here:
Credit: shutterstock_2194661177
Comentarios