Deepening EU Banking Crisis Meets Euro-TARP on Angel Dust

If the ECB scales back stimulus, banks face even greater risk of collapse. But now there’s a new solution.

Events are moving so fast in Europe these days, it’s almost impossible to keep up. While much of the attention is being hogged by political developments, including the election in the Netherlands, Reuters published a report warning that the European 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, albeit extremely tentatively.

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.

On a country-by-country basis, things look even scarier. Currently 10 (out of 28) EU countries have an NPL ratio above 10% (orders of magnitude higher than what is generally considered safe). And among Eurozone countries, where the ECB’s monetary policies have direct impact, there are these NPL stalwarts:

  • Ireland: 15.8%
  • Italy: 16.6%
  • Portugal: 19.2%
  • Slovenia: 19.7%
  • Greece: 46.6%
  • Cyprus: 49%

That bears repeating: in Greece and Cyprus, two of the Eurozone’s most bailed out economies, virtually half of all the bank loans are toxic.

Then there’s Italy

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