Why the euro crisis still isn’t over, in 1 chart

Everybody likes to pretend that the euro crisis is over.

There are the politicians who never want to hear the word “bailout” again. The central bankers who never want to hear the word “deflation” again. And the people who never want to hear the words “bond spreads” again. But this suspension of belief, of course, hasn’t done anything to end Europe’s depression. Unemployment is still over 25 percent in Greece and Spain, 15 percent in Portugal and 10 percent in Ireland.

So why hasn’t Europe gotten a real — or any — recovery? Well, it’s the debt, stupid.

Now, it hasn’t been the same kind of debt. Greece, as Germany will sternly remind you, has gotten into trouble from too much government debt. So has Italy, though it’s actually been pretty fiscally responsible — hurt more by bad growth than bad budgeting. But every other country that’s run into problems has done so because of too much private, not public, debt. You can see that in the chart below from Standard & Poor’s, which shows total private liabilities — household and corporate — as a percentage of GDP.

(© Standard & Poor’s 2014)

There’s a reason debt is a four-letter word. Every euro that the private sector spends on paying back what it owes is a euro that gets sucked out of the economy. That’s because overindebted households and companies don’t want to take on much more debt, and banks don’t want to make as many loans now that they have to comply with tougher capital requirements.

In other words, deleveraging is creating economic headwinds that Europe hasn’t been able to overcome. Actually, it hasn’t even really tried.

Lees dit artikel door Matt O’Brien verder op The Washington Post