29 Oct 2011

The Scale of EU debt and interest payments

Clearly, everyone is seriously concerned about the scale of debt within the European Union countries. I thought I would compile the latest numbers, by taking the September 2011 values for the interest rates that governments are being charged and the total amounts of government debt that I downloaded from the Eurostat website. The results are shown here.
The numbers are really quite revealing. Firstly, the actual amount of debt can be very high even in countries like Germany that are supposedly quite healthy. Germany actually owes over 2 trillion euros. But the interest rates that different countries have to pay to the markets for their debts vary enormously, from just 1.83% in the case of Germany, to 17.78% for Greece. No wonder the Greeks are in such a bad way. Despite oweing "only" 329 billion euros, they have to pay the banks something close to 60 billion a year in interest.

If we add up all the debt within the 27 European countries we get a number that is close to 10 trillion euros - a number that is actually almost exactly equal to the $14 trillion of public debt in the USA (an euro is currently worth $1.40) . And European tax payers are having to find something like 400 billion a year just to pay off the interest on this debt.

The numbers are clearly insane. So, I come back to the question I was asking recently. Namely, what would happen if we said to the banks that we will pay back all the money that is owed that actually belonged to the banks that made the loans. I really think that there is no obvious reason why we should be forced to pay off the loans that involved the magical trick of fractional reserve banking in which banks simply create money out of thin air.  Since the banks don't owe that money to anyone else, nothing terrible will happen  except that the banks would not be able to hand out massive bonuses and dividends to shareholders. No big deal.

Of course, if the banks object, there is always the other option of using an FTT to recover the money.

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