Monday, January 23, 2012

Money Supply Figures Suggests Italy Headed Into Depression; Non-Performing Spanish Loans Hit 134 Billion Euros, 7.51% of All Loans, Highest in 17 Years; Eurozone Unemployment Charts

Ambrose Evans-Pritchard says The euro is pushing Italy into depression
Here is the latest money supply chart from the Banca d'Italia. Just look at M3. Horrendous.

Italy M1, M2, M3

click on chart for sharper image

This speaks for itself. There is no clearer indictment of the dysfunctional nature of monetary union. Italy is being pushed into depression. Criminal.

Obviously, Italy and Germany can no longer share the same monetary policy. Ergo, Germany should leave EMU, pronto.

The Banca said Italy's economy contracted by 0.5pc in the last quarter of 2011. It will shrink by a further 1.5pc this year, with no growth in 2013.

This is a direct result of the misguided pro-cyclical austerity policies imposed by Angela Merkel and the ECB ? the infamous Trichet letter ? without offsetting monetary and exchange stimulus.

This will of course play havoc with Italy's debt trajectory.
Non-Performing Spanish Loans Hit 134 Billion Euros, 7.51% of All Loans

Italy may be headed for depression, but Greece, Spain, and Portugal are already in depression. The most important country in that sad group is Spain, and the Spanish hit-parade keeps right on rolling.

Via Google Translate, please consider Non-Performing Spanish Loans Highest in 17 Years.
The NPL ratio of credit granted by banks, savings banks, cooperatives and credit institutions rose in November to 7.51%, the highest percentage for seventeen years due to increased volume of bad loans, which exceeded the 134,000 million euros. [134 billion]

According to provisional data published today by the Bank of Spain, this new increase of one tenth compared to 7.41% last month, is the fifth in a row after the small cuts that took place in June.

As the volume of bad loans, the loan portfolio of banks, savings banks, cooperatives and credit institutions rose in November to 1.785 billion euros [1.785 trillion euros in US notation], from 1.778 billion [trillion] in October.
Eurozone Unemployment Rates

click on chart for sharper image

Tax Hikes, Austerity Measures Will Backfire

Spain, Greece, Ireland, and Portugal and Italy already have high and rising unemployment rates. France unemployment rate is relatively stable near 10%.

In contrast, the unemployment rate in Germany is low and falling. Don't expect that condition to last. A European recession will affect the German export machine and Germany's unemployment more than most suspect.

Given various austerity measures in Spain, Portugal, France, and Italy coupled with high and rising taxes, expect eurozone economic conditions to get much worse. The sad thing is, four eurozone countries are already in depression.

Changing work rules, pension rates, retirement ages, is badly needed. Raising taxes in a harsh recession is inane.

Greece is going to default and Portugal will soon follow. The ECB is attempting to fence off Italy and Spain, but the only way it can do so is by buying massive quantities of Italian and Spanish debt (and doing so puts Germany and France at risk when the setup blows up).

How long the ECB can get away with this policy before the bond market focuses on France and Germany remains to be seen, but it sure will not be forever.

Mike "Mish" Shedlock
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