6 Jan 2012

4.25% of Eurozone GDP disappears in interest payments to the banks!

The figures are totally incredible. I just took the latest figures for Government debt across the EU, and the Interest rates that the markets are charging for the debt (using the latest figures here), to generate the following table that shows just how much money is being sucked out of the economy every year by the banking sector.

If we take the 17 eurozone countries, we can see that the banks are currently skimming off €391 billion euros every year. That's 4.25% of the entire Eurozone GDP. In the case of Greece, that percentage reaches nearly 26%. Do we need to look any further to understand why the Eurozone is in crisis, and why millions of European citizens are losing their public services and their jobs?

Now consider the fact that the banks who are creaming off the €391 billion can borrow the money from their friend Mario Draghi who is head of the European Central Bank at the very friendly rate of roughly 1% over 3 years. That is one fifth of the average rate that the markets are charging on government debt across the Eurozone. On the 21st December, 523 banks were handed 489 billion euros of freshly printed ECB money. They could have used that money to lend to Eurozone governments at, say,  2% and still make a handsome profit. OK, it would be a bit less than the 5% that they are currently getting, but getting a rate twice as high isn't bad.  But what did the banks decide to do with the money? Well, we learned yesterday that €453 billion (93% of the total) has just been parked back with the ECB, where they get a trivial 0.25% interest rate. Brilliant.

This is completely insane. Consider for a moment what would happen if the ECB was lending to governments rather than banks. If the Eurozone countries borrowed the 7842 billion euros needed to pay off all their debts to the banking sector, and paid the ECB back at the 1% rate offered to banks, the amount that it would cost to pay the interest would drop from €391 billion to just €78 billion, a saving of 80%. That's one hell of a lot more money in the system, and one hell of a lot less money being creamed off by the banks.

And frankly, I don't see any reason why the ECB couldn't lend the money at the same rate that the US Federal Reserve has been secretly lending money to the banks - namely 0.01%. In that case, there would be an extra €390 billion of money in the European Economy.

How could anyone in their right mind defend the current system? I defy anyone working in the financial sector to explain to the rest of us what precisely they do to deserve being allowed to take 391 billion euros per year out of the pockets of European Tax payers. The 4.5% of Eurozone GDP that goes directly to the banks simply cannot be justified.

Now that we have discovered that the ECB can perfectly well lend to governments via "publicly-owned credit institutions", it seems to me that the time has come to put an end to this insanity.

The 99% should demand that their governments borrow the money they need to pay off all their debts to the markets. The next window for ECB handouts is on the 29th February. We should all be there.


  1. Hi Simon,

    I believe the interest rates quoted are paid on new debt.
    Bonds issued a few years ago will pay a lower interest rate?

    The interest payments will be a weighted average of the bonds issued at different periods of time?

  2. Quite right Postkey. Actually, since I calculated the figures, the interest rates for Greece have gone up another 3.2% - to reach an unbelievable 21.14%. The markets can thus suck 30% of the Greek GDP in interest rates. Numbers for 2010 - which are the actual amounts of interest paid are shown here simonthorpesideas.blogspot.com/2012/01/cost-of-european-debt-official-figures.html

    In 2010, Greece paid 13.2 billion euros in interest charges - 5.8% of its GDP. But that's just because they were still paying off the old loans, the one's with slightly less obscene interests rates on them.