22 May 2016

All the increase in Eurozone Public Sector Debt since 1995 is due to Interest Payments!

This is a real bomb-shell.

We are continuously being told that Public Sector Debt is the result of governments spending too much on health, education, social services etc. Austerity is essential to balance the books.

Here is the proof that this is a total myth. The real culprit is the insane system, built into the Maastrict and Lisbon treaties that forces our governments to borrow money from Commercial Banks, who can create the money they lend out of thin air, and then charge taxpayers interest.

I took the latest data from Eurostat, which provides information about the level of Public Sector debt for nearly all European countries since 1995. It also provides details of the amount of interest paid on Public Sector debt every year for the same period. I've already had a series of posts on the data since they came out on the 21st April. The first post listed the levels of Public Sector debt for Eurozone Countries which had increased to nearly €12.5 trillion at the end of 2015. A second post looked at the interest payments which totalled over €335 billion in 2015, and brought the total since 1995 (when Eurostats figures start) to nearly €7.2 trillion. A third post looked at the effective interest rates we have all been paying since 1995, and noted that taxpayers have been paying way above market rates for years.

But the current post really puts a finger on where it hurts most. Specifically, the following table provides what I consider to be the ultimate demonstration of the stupidity of the system.

The first line shows that total public sector debt across the 28 countries of the European Union stood at nearly €12.5 trillion at the end of 2015. If we compare this number with the total debt at the end of 1995 (it was over €4.75 trillion), we can calculate the increase in debt over that 21 year period - namely €7.73 trillion.  The next column gives the total cost of interest periods for the same period - €7.18 trillion. And that means that 93% of the increased public sector debt was used to pay the banks.

The second line shows that the situtaiton for the Eurozone is even worse. Since 1995, public sector debt in the 19 Eurozone countries has increased by over €5.37 trillion. But the interest payments for the same period now total over €5.7 trillion, meaning that 106.3% of the increase in public sector debt was used to pay the banks.

The rest of the table shows how the figures breakdown country by country. Things are complicated by the fact that there are some holes in the Eurostat data. Specifically, figures for debt in Denmark are only provided since 2000. During that period, Denmark's public sector debt only increased by €13.8 billion, and yet during the same period Denmark's taxpayers handed over 5.5 times more money in the form of interest payments.  Very generous of them.

Norway's figures only start in 2011. Since then, public sector debt only increase by €4.3 billion. But Norway's taxpayers nevertheless handed over 3 times as much money in interest payments.

Neverthless, for most countries, the Eurostat data provides both Public Sector Debt and Interest Payments since 1995. And the results are a real surprise.

In the Eurozone, Belgian public sector increased by 50%, but if they had not been paying the interest charges, public sector debt would be just €117 billion, 27% of what it is today.

In Italy, if taxpayers had not had to pay over €1.65 trillion in interest, their public sector would  be a mere €517 billion, instead of getting on for €2.2 trillion.

Without interest payments, Germany's mountainous €2.15 trillion of public sector debt would have dropped to €820 billion.

And so it goes on.

Isn't it time that we changed the system?

How could we change it? Just put an end to a system where commercial banks lend our goverenments money and charge interest. Central banks like the ECB and the Bank of England should lend to goverenments at the same rates they charge the financial markets.

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