Wednesday 20 June 2012
Ambrose thinks the tentative deal to douse the raging fire in Spain and Italy comes in the nick of time, but is fraught with fresh dangers. And while he is undoubtedly right, this is on the vague assumption that the money can be found. But ...
Unfortunately, the ESM fund does not yet exist. It has not been ratified by Germany and Italy. When it does come into being, it won't have much money. It has a theoretical limit of €500bn - a nice wish - but its paid up capital will start at just €22bn.However in all the excitement, the invisible elephant of consumer debt escapes mention. While this news was coming in, we also got a reminder that UK credit card debt had reached £1 trillion before the credit crisis, in 2005. Average credit card debt per UK household then stood at almost £2,300 and was at its highest in London, where average household debts totalled £2,861.
Now, as then, UK consumer debt is at an historical high. It amounts to more than the entire external debt of Africa and South America combined. Nor has the debt mountain stopped growing. Between them, UK consumers have a total of 66.8 million credit cards – five times the European average.
By February 2012, UK households owed an average of £7,900 on personal loans, overdrafts and credit cards. And that was after each household had paid off an average of around £355 of their unsecured debt. UK households remained "among the most indebted in the world" despite three successive years of net repayments.
With the continuing slide in incomes and a lack of domestic demand, our ability to service personal debt will create further vulnerabilities in domestic banks already fatally exposed to the euro crisis to the tune of £100 billion.
If the national systems collapse, there will thus be a double-whammy effect as the consumer credit market collapses in its wake. Debt, which is already treated as a commodity, will suffer a catastrophic write-down, rendering the latest round of stimulation a futile gesture.
While pundits are saying that "Europe" is running out of time to write a new ending, the markets are getting tired of replaying the same day over and over and over again. But, when the music stops, the consequences could be worse than anyone could imagine.
And, as much as anything, we are looking at a failure of imagination. Says Simon Jenkins:
It's not working, is it? No matter how many summits there are, no matter how many times the Greeks vote or Barack Obama pleads or David Cameron lectures from on high, nothing happens. The yield on Spanish bonds, that beckoning finger of apocalypse, goes relentlessly upwards.All we do, he says, "is howl, simper and plead for Germany to do something, even just kick the can down the road. Alongside Europe's tottering mountain of debt lies a pit of intellectual emptiness".
I know it's hackneyed, and even premature, but we are seeing the death of the projet.
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