Deepening EU Banking Crisis Meets Euro-TARP and Taxpayers
While much attention in Europe is on political developments, the banking sector may face even higher bad loan risks if the ECB begins to scale back its monetary stimulus programs, something it has already begun.
The total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world. In Greece and Cyprus, virtually half of all the bank loans are toxic. Then there’s Italy, where $350 billion of NPLs account for roughly a third of Europe’s entire bad debt stock.
On a country-by-country basis, things are even worse. Currently 10 out of 28 EU countries have an NPL ratio above 10% (orders of magnitude higher than what is generally considered safe).
Someone must step in to help, and that someone is almost certain to be the European taxpayer.