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The Runs

Europocalypse Now

What’s that shocking smell wafting around Europe?

Well, if you were sniffing in a Netherlandly direction on Wednesday, you’d have caught an unmistakable tang of fear among the thrifty Dutch, who for a brief moment during a banking technical malfunction thought they’d become the latest Eurozoners to have their hard-earned whipped from their accounts by incompetent bureaucrats.

Across the nation, many customers of ING Bank, one of Europe’s biggest banks, logged on – that is, when they could get online – only to discover that their credit balances had inexplicably turned into rather serious overdrafts.

“Are we Cyprus?” a concerned client implored of no-one in particular but of everyone gathering at ING Bank’s fast-filling Harlemmerdijk branch, in Amsterdam’s Canal Belt. Hassled staff handed out free water in bottles hued in Dutch-orange, and tried to mollify us with assurances that all was well in Dutch banking and, no, Amsterdam had not suddenly turned into Nicosia.

As bank runs go, this one was pretty pathetic; in this branch it consisted of about 25 confused punters sucking their ING-sourced H2O while lining up to punch their PINs into ATMs that weren’t working anyway. And the Dutch are a trusting lot, at least they became more so after news sites summoned on smartphones revealed there had been no announcement of The Netherlands having morphed into a Mediterranean basket case. Or, more to the point, when the headlines from those same sites reported that the Paniek! was prompted by a bank cock-up – technical and not state policy. It wasn’t quite panic on Harlemmerdijk on Wednesday, but it was heading toward that side of the straat for a little while there.

<p>Yiannis Kourtoglou/AFP/Getty Images</p>

Yiannis Kourtoglou/AFP/Getty Images

Protestors march through the streets of the Cypriot capital, Nicosia, on March 27, 2013.

As things got fixed and Dutch banking returned to his staid old self as Germany’s branch office, by the end of this befuddling day, it served to confirm that old adage that when suspecting a conspiracy, it’s best to plump for a cock-up every time.

But if there was a particularly bad time for a major European bank to have technical malfunctions, that time would be now, barely a week after Brussels and Berlin spooked Europeans by demanding that Cypriots – and their Russian banking clients – accept the trimming of as much as 60 per cent from their deposits held in the island’s banks, instead of the usual state-funded rescue now commonplace elsewhere. Interestingly, it was a Dutchman, the country’s finance minister Jeroen Dijsselbloem, who had expressed the view that the Cypriot ‘bail-in’ provided a useful template for future financial rescues in Europe, until he was roundly slagged for doing so, and duly backtracked.

Meanwhile, tiny Cyprus continued to rage that it had been bullied by Brussels, because that’s what bureaucratic Goliaths do to would-be Mediterranean Davids when given a chance; and the Russian oligarchs and the mates of Putin who had turned Cyprus into an offshore banking centre (maybe because they don’t trust that their own banks won’t be looted) reckoned they’d been ripped off.

Comprising less than 0.2 per cent of the collective Eurozone economy, Cyprus is in no position to punch back, and will be even less empowered as its economy contracts by a forecast 8 per cent this year. But Russia, with its Europe-bound oil and gas, can. And doubtless will exact revenge at a time of its choosing. Watch this space.

With such a precedent set in Cyprus, spooked Europeans elsewhere fret that it’s potentially open season on their own savings, too, if their economies were to get stuck deeper into the Euromire.

So it’s not a lot of fun to be European right now?

Hardly. With such a precedent set in Cyprus, spooked Europeans fret that it’s potentially open season on their savings, too, if their economies were to get stuck deeper into the Euromire. It’s been an austerely long five-plus years since they were first confronted by this crisis, and there seems to be no end in sight.

If personal deposits are now directly threatened, economists worry that for more and more Europeans, those who have the funds and the know-how, it might be “Hello Singapore” and “Bye-bye Siena and Sevilla” for what’s left of their euros, and maybe “Hello Hong Kong” and “Vaarwel!” to the likes of the Harlemmerdijk branch of ING, with its orange bottles of placatory water.

Still worse news came in the form of the latest unemployment data from Eurostat, Brussels’ official gatherer of info on all things European. Joblessness across the 17-member Eurozone is now a record 12 per cent, ranging from the virtual full employment of Teutonic Germany and Austria to the staggering 26.4 per cent and 26.3 per cent out of work in hard-hit Greece and Spain, respectively. The Eurostats confirmed this was the 22nd consecutive periodic rise in Europe’s jobless, which would be political cancer if the Brussels-based commissioners running the continent were elected — which they are not.

Unemployment among school leavers and under-25s is particularly high. In Spain – 55.7 per cent of them can’t get jobs. And it’s so bad in Greece, where youth unemployment was measured at a staggering 58 per cent in December last year, that they seemed to have stopped counting. There’s much concern, not least among politicians, for the social unrest that might erupt from this lost generation.

And on Thursday, even more Euro-grief. The mighty German economy, which anchors (read rescues) all this mess, was revealed to have slowed to “near stagnation” in March, according to a closely watched factory-door survey which monitors manufacturing across Europe. That same Markit purchasing managers’ index also revealed that manufacturing in France, the Eurozone’s second biggest economy, had declined to its worst point in four years.

Surely things are turning around somewhere?

Hmmm... if money and credit are the lubricants that make economies motor, here’s a scary screenshot that suggests the Eurozone is in desperate need of another fiscal grease-and-oil change:

<p>Source: @finansakrobat on Twitter</p>

Source: @finansakrobat on Twitter

This is collated data from Eurostat and the US Bank of America Merrill Lynch. It shows how credit growth – lent money – has evaporated over the past two years in select Eurozone economies. Spain, which has always been grim on this front, has only grown grimmer – but look how Italian credit provision has slumped. And to think that Brussels has been telling Europeans that the worst is over.

So it’s no wonder national voters are flocking to political protest movements?

That’s right, in Greece, Spain and elsewhere but in Italy where the spiky former comedian Beppe Grillo’s Five Star Movement got 25 per cent of the vote in last February’s polls, railing against the ancien regime hasn’t yet done them any good. Two months since the regime change, pivotal Italy is as ungovernable as ever, making the euro as wobbly as ever. Asked to form a government by the outgoing president, the centre-left’s Pierluigi Bersani said he wouldn’t deal with the right’s Silvio Berlusconi, the three-time PM desperate for a fourth term. And finger-pointing kingmaker Grillo won’t do deals with anyone, correctly claiming they are all corrupt. “Only a mentally ill person [would wish to govern Italy],” harrumphed a disgusted Bersani as he exhausted his coalition options. So that leaves the technocratic Mario Monti in office, who collected only 10 per cent of Italians’ votes in February.

Italy, Spain, Portugal, Ireland, Greece... and now Cyprus is the latest nightmare. Who’s next?

If you take the fashionable view among economists and post-Cyprus Euro-fretters – that it’s preferable for a country’s banking system be broadly proportionate to its economic output, that banking assets should more or less equal the national widgets and services produced – then Europe has a chronic monetary migraine.

According to London-based economic research house Capital Economics, Cyprus had a banking system that was seven times the size of its economy — it was the no-questions-asked Iceland of the Med, as Russians saw it. There were similar stashes of cash in Ireland too, before the one-time ‘Celtic Tiger’ crashed in 2008.

Now Eurostat data shows Malta’s bank-assets-to-GDP ratio to be even higher than those of troubled Cyprus had, at more than 7.6 times. Of course, the Maltese government puts it at closer to three times, which makes everyone feel so much better.

Tiny Malta won’t crash the EU or the euro of itself, but another depositor ‘bail-in’ along the lines of Cyprus, if it comes to that in Valetta, will confirm what more important Europeans in bigger but risky economies such as Spain and Italy already suspect is Brussels policy. And any resultant capital flight in the Eurozone proper – say, a supersized version of what was nervously contemplated by some on Wednesday this week in Amsterdam – would surely sink the euro.

Many analysts also look gloomily to Slovenia, which is reported to have bad banking loans equal to one-fifth of its GDP.

And as analysts calculated its bank-assets-to-GDP ratio at a whopping 20 times, secretive Luxembourg – the discreet European plutocrat’s preferred retreat, and one of the six original EU members – was moved in a rare government explanation to insist that it wasn’t a Cyprus-in-waiting, because German banks are its biggest clients.

So that’s all right then. Except it’s not. Because this is Europe today, and neither the people nor the markets much believe those who lead them.

7 comments on this story
by Mano

Pleasen Mr Editor would please send our Phantom Tony Opposition Fed Leader our shadow treasurer the economic "houmar//donkey of Bershiba" both with a supposedly Economic Degree from Sydney Uni an enlarged graph as per above - they are both at sea with their economics particularly "Joe" who is all over the place when he comments economics - They should both hold each other with one hand and the other hold their degrees and return them to the Chancelor of their old University. They both claim they can improve on our present good economic state ! ! ! PLEASE PLEASE PLEASE. Their "economicss" credibility is rubbish and yet for an unknown reason people believe them - there is only despair by those that care about our country "Australia".

April 6, 2013 @ 2:23pm
by Mano

How many times should I have to comment ????

April 6, 2013 @ 2:23pm
by JIM MELLON

V GOOD ARTICLE ERIC..THEC REAL TRAIN WRECK NOT MUCH TALKED ABOUT - AND COMING TO A NEWSPAPER NEAR US ALL SOON - IS FRANCE...

April 6, 2013 @ 8:25pm
by Hacim Obmed

Sigh. I suppose the liberals will assure us that all this is all the result of austerity and has nothing to do with the european welfare state and years of overtaxation and regulation. Anyone in Europe who wants to start and run a business or hire workers is treated as a criminal and then they wonder why things fall apart and society stagnates. Ayn Rand is rolling in her grave with laughing.

April 7, 2013 @ 3:57am
Show previous 4 comments
by Dean

I am snapping up shares in Eastern European blanket retailers. Very cold indoor temperatures are forecast for the coming northern winter!

April 7, 2013 @ 6:45pm
by chris

The Euro has murdered the smaller nations competitiveness. Unfortunately the EU politicians/bureaucrats will flog this dead horse because their life work is caught up in it.

April 8, 2013 @ 12:27pm
by Charles De Richelieu

As a European without a pot to proverbially "Piss in", I am delighted I may have much more company in the near future!

April 17, 2013 @ 10:32pm
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