MUNICH – “It’s not the euro that’s in danger, but the public finances of individual European countries.” One hears this everywhere nowadays, but it’s not true. The euro itself is at risk, because the countries in crisis have, in recent years, been running the eurozone’s monetary printing presses overtime.
Some 90% of the refinancing debt that the commercial banks of the GIPS countries (Greece, Ireland, Portugal, and Spain) hold with their respective national central banks served to purchase a net inflow of goods and assets from other eurozone countries. Two-thirds of all refinancing loans within the eurozone were granted within the GIPS countries, despite the fact that these countries account for only 18% of eurozone GDP. Indeed, 88% of these countries’ current-account deficits over the last three years were financed via the extension of credit within the Eurosystem.