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Gene Ellis

Do not kid yourself that the eurozone is recovering - FT.com - 0 views

www.ft.com/...aa-11e3-bbeb-00144feab7de.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • Comparing the first half of 2007 and the first half of 2013, real GDP contracted by an accumulated 1.3 per cent in the eurozone, 5.3 per cent in Spain and 8.4 per cent in Italy.
  • In the same period investment was down by an accumulated 19 per cent in the eurozone – and 38 per cent in Spain and 27 per cent in Italy. Between the first quarter of 2007 and the first quarter of 2013, employment fell 17 per cent in Spain and 2 per cent in Italy.
  • Italy is stuck with a combination of an unsustainable high level of public debt and no productivity growth. It has essentially two options to adjust – become like Germany, or leave the eurozone. The country is unable to do the first, and unwilling to do the latter
  • ...4 more annotations...
  • Italy faces no immediate threat for as long interest rates remain low. The country will be able to muddle through for a while until some political or economic shock will force a decision one way or the other.
  • Meanwhile, the single largest constraint on the resumption of eurozone growth is not fiscal policy – which is broadly neutral at present across the single currency area – but the continued failure to clean up the banks. The growth rate of loans to the non-financial sector turned negative in 2009, showed some intermittent improvements, only to then deteriorate again last year.
  • The monetary and banking data are telling us that the economy will teeter on the brink of zero or low growth for the foreseeable future because the financial sector is not supplying the economy with sufficient funds to expand.
  • Banking union could help, but only if it were to break the relationship between banks and sovereigns and clean up the balance sheets.
Gene Ellis

Italy Falls Back Into Recession, Raising Concern for Eurozone Economy - NYTimes.com - 0 views

www.nytimes.com/...cern-for-eurozone-economy.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Italy Falls Back Into Recession, Raising Concern for Eurozone Economy
  • Some economists argue that the region is already well into a so-called lost decade.
  • Analysts surmised that the strained relations with Russia as well as turmoil in the Middle East had undercut demand for Italian exports, in particular fashion and other luxury goods.
  • ...8 more annotations...
  • “I definitely expect that things will get worse,” he said.
  • The European Union exported agricultural goods worth 11.8 billion euros, or $15.8 billion, to Russia last year, and sales have been rising at a rate of almost 15 percent a year.
  • The economic data and news that Russia was massing troops and military equipment on the Ukrainian border caused stock prices to fall across Europe on Wednesday.
  • Separately, the German Federal Statistical Office reported on Wednesday that new industrial orders in Germany fell 3.2 percent in June compared with May. Analysts had expected orders to increase.
  • For Italy, the deteriorating economy puts greater pressure on Prime Minister Matteo Renzi, who less than a week ago promised not to impose any more government budget cuts and to invest in improving the country’s roads and other infrastructure. Such promises will be difficult to keep if slower growth, which usually translates into higher unemployment and lower corporate profits, limits tax receipts.A slower economy also endangers Italy’s ability to comply with eurozone rules on budget deficits.
  • Italy’s 2.1 trillion euro government debt equals 136 percent of its annual gross domestic product, the second-highest debt ratio in the eurozone, after Greece.
  • They said Italy’s problems stemmed more from its failure make changes needed to improve the performance of its economy.
  • The slow pace of structural reforms is worrisome,” said Paolo Manasse, a professor of macroeconomics at Bologna University. He said there was no sign of progress on necessary steps like selling off state-owned assets or overhauling the labor market or public pension system.
Gene Ellis

"A Banking Union Baby Step" by Daniel Gros | Project Syndicate - 0 views

www.project-syndicate.org/...a-banking-union-baby-step

banking union

shared by Gene Ellis on 10 Jul 12 - No Cached
  • The recently created European Banking Authority has only limited powers over national supervisors, whose daily work is guided mainly by national considerations.
  • Moreover, the ECB already bears de facto responsibility for the stability of the eurozone’s banking system. But, until now, it had to lend massive amounts to banks without being able to judge their soundness, because all of that information was in the hands of national authorities who guarded it jealously and typically denied problems until it was too late.
  • Consider the case of a bank headquartered in Italy, but with an important subsidiary in Germany. The German operations naturally generate a surplus of funds (given that savings in Germany far exceed investment on average). The parent bank would like to use these funds to reinforce the group’s liquidity. But the German supervisory authorities consider Italy at risk and thus oppose any transfer of funds there.CommentsView/Create comment on this paragraphThe supervisor of the home country (Italy) has the opposite interest. It would like to see the “internal capital market” operate as much as possible. Here, too, it makes sense to have the ECB in charge as a neutral arbiter with respect to these opposing interests.
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  • Economic (and political) logic requires that the eurozone will soon also need a common bank rescue fund. Officially, this has not yet been acknowledged. But that is often the way that European integration proceeds: an incomplete step in one area later requires further steps in related areas.
Gene Ellis

Euro Crisis: Italy 'To Dump Public Holidays' - Yahoo! Eurosport UK - 0 views

uk.eurosport.yahoo.com/...lidays-121903420--finance.html

shared by Gene Ellis on 19 Jul 12 - No Cached
  • As a result, technocrat prime minister Mario Monti is considering cutting back on public holidays in a bid to increase growth after officials said even slashing days off by a working week would boost growth and raise GDP by as much as 1%.
  • Italy has a total of 11 recognised public holidays a year but unlike Britain these remain fixed and if they fall mid-week people traditionally take the days off either side as well in order to ''make a bridge'' until the weekend, which has drastic consequences on industrial output.
  • Sources say the Government will keep the ''main religious festivals such as Easter and Christmas'' but are looking at scrapping some of the secondary ones such as Boxing Day, Epiphany on January 6th and the Immaculate Conception on December 8th.
  • ...2 more annotations...
  • One idea drawn up by ministers Antonio Catricala and Antonio Polillo, from the Finance ministry, is to move them and the military holidays to the nearest Sunday so they will in effect still be celebrated but not on the specific date itself.
  • 'These holidays represent the best of our past, the values on which our Republic was founded on, they are in a word history and they should not be touched. You cannot tell us that there are no other ways of boosting productivity and increasing growth. ''The country should be left its history and it should be allowed to conserve its values, values that the majority of the country are fully supportive of, that is what we are asking the government to remember.''
Gene Ellis

A Mafia Legacy Taints the Earth in Southern Italy - NYTimes.com - 0 views

www.nytimes.com/...italy-a-deadly-mob-legacy.html

shared by Gene Ellis on 30 Jan 14 - No Cached
  • A Mafia Legacy Taints the Earth in Southern Italy
  • Camorra
  • One environmental group estimates that 10 million tons of toxic garbage has been illegally buried here since the early 1990s, earning billions of dollars for the mafia even as toxic substances leached into the soil and the water table.
Gene Ellis

Italy struggles with Plan B if Russian gas supplies cut | Reuters - 0 views

in.reuters.com/...as-italy-idINL5N0QV30B20140826

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Italy struggles with Plan B if Russian gas supplies cut
Gene Ellis

Some thoughts on German politics and the saver's tax in Cyprus | Credit Writedowns - 0 views

www.creditwritedowns.com/...-the-savers-tax-in-cyprus.html

shared by Gene Ellis on 18 Mar 13 - No Cached
  • Now, the large 82.8% German government debt to GDP ratio is a source of shame for many because Germany was a driving force in enshrining the 60% government debt to GDP hurdle into the Maastricht Treaty that set out terms for the euro zone.
  • Moreover, the interest rate policy of the ECB, geared as it was to the slow growth core, produced negative real interest rates and credit bubbles in Spain and Ireland during the last decade. German banks piled in to those countries as prospects domestically stagnated.
  • “The average German worker feels like a cash cow being sucked dry by a quick succession of reforms and bailouts that take money out of her pocket. First it was for reunification, then for European integration, then to right the economy, then to bail out German banks, and finally to bail out the European periphery. Fatigue has set in.”
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  • The bottom line is that none of the major political parties in Germany are going to vote for bailouts for other euro zone countries unless massive strings are attached, since these bailouts are political losers.
  • The anti-bailout part of the FDP platform is the one part of their rhetoric which could successfully take them over the 5% hurdle. The FDP’s complicity in using German taxpayer money to bail out the so-called profligate periphery is a one-way ticket out of Parliament.
  • “First, the Greek reports come via statements made by Michael Fuchs, CDU deputy Bundestag head and a senior member of German Chancellor Angela Merkel’s party. Fuchs warned earlier today that Germany would veto further aid to Greece if the country has not met the conditions of its previous bailouts.
  • “Second, all along Germany has indicated that it is resistant to increasing funding of the ESM and EFSF bailout facilities. This presents a problem in the case of Spain and Italy because of the size of those economies.
  • Willem Buiter, Chief Economist at Citigroup, has been most vocal in predicting that these facilities will be inadequate when Spain and Italy hit the wall and that more extreme measures will have to be taken.
  • The basic dilemma here is that almost all of the eurozone governments including Germany carry high debt burdens in excess of the Maastricht Treaty. For example, Germany has been in breach of Maastricht Treaty in 8 of 10 years since 2002, has been over the Maastricht 60% hurdle in each of those ten years, and now carries a debt to GDP burden above 80%.
  • The long and short of it was that the Germans had reached the end of their ability to support bailouts.
  • All evidence is that this levy has created panic in Cyprus. After all, what is the use of having a deposit guarantee if government can arbitrarily circumvent it to impose losses on your deposits anyway?
  • One can't just blame Cyprus for this fiasco. The ECB, EC and European Union finance ministers signed off on the insured deposit grab too]
  • My view? It was inevitable that we would be in crisis again. The austerity world view of crisis resolution is completely at odds with the capacity of the euro zone’s institutional architecture to handle a crisis.
Gene Ellis

Eurozone: Looking for growth | vox - 0 views

www.voxeu.org/...eurozone-looking-growth

looking growth vox

shared by Gene Ellis on 25 Mar 13 - No Cached
  • Empirical evidence suggests deleveraging episodes accompanied by a housing crisis will take on average five and a half years across high-income OECD countries (or seven years when accompanied by a banking crisis (Aspachs-Bracon et al. 2011, IMF 2012).
  • Little resolution of banking-sector difficulties in the Eurozone suggests that deleveraging and credit will probably remain slow and impaired for much longer than previously thought. Recoveries that happen without credit are, on average, a third longer than recovery episodes with credit (Darvas 2013).
  • Damages to trend growth are notoriously difficult to assess,
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  • In addition, observed GDP growth tends to be revised until several years after the first estimate
  • Our work is based on a simple Solow growth-accounting methodology.
  • A common feature of all economies is a collapse in productivity, which is typical of a big recession. In addition, Spain and Italy also underwent a very sharp labour contraction.
  • The additional effect of ageing.
  • A downside risk is that investment growth does not recover fully (for example, because banks fail to provide the necessary funding). In this case, we assume investment growth is only half what it was before the onset of economic turmoil.
  • We also estimate productivity through a convergence equation, which would slightly lift productivity in peripheral countries in the future.
  • This exercise suggests that in the absence of policy reforms, trend growth will have been damaged significantly, by at least one percentage point, post-crisis, compared with pre-crisis levels,
  • In the event that investment fails to recover quickly
  •  or unemployment levels take longer to fall than in previous recovery episodes, then trend growth would be significantly lower for longer. Trend growth might well remain negative in Spain and Italy, and may fail to increase for Germany or France.
  • this exercise shows the damage will indeed be long lasting, permanently impairing growth in a context of an ageing population that needs higher growth capacity than ever before.
Gene Ellis

"A Centerless Euro Cannot Hold" by Kenneth Rogoff | Project Syndicate - 0 views

www.project-syndicate.org/...a-centerless-euro-cannot-hold

euro hold kenneth project syndicate GDP

shared by Gene Ellis on 05 Apr 12 - No Cached
  • The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders.
  • With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable?
  • What of Nobel Prize winner Robert Mundell’s famous 1961 conjecture that national and currency borders need not significantly overlap? In his provocative American Economic Review paper “A Theory of Optimum Currency Areas,” Mundell argued that as long as workers could move within a currency region to where the jobs were, the region could afford to forgo the equilibrating mechanism of exchange-rate adjustment.
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  • if intra-eurozone mobility were anything like Mundell’s ideal, today we would not be seeing 25% unemployment in Spain while Germany’s unemployment rate is below 7%.CommentsView/Create comment on this paragraph
  • Peter Kenen argued in the late 1960’s that without exchange-rate movements as a shock absorber, a currency union requires fiscal transfers as a way to share risk.
  • Europe, of course, has no significant centralized tax authority, so this key automatic stabilizer is essentially absent.
  • Many Germans today rightly feel that any system of fiscal transfers will morph into a permanent feeding tube, much the way that northern Italy has been propping up southern Italy for the last century. Indeed, more than 20 years on, Western Germans still see no end in sight for the bills from German unification.
  • Later, Maurice Obstfeld pointed out that, in addition to fiscal transfers, a currency union needs clearly defined rules for the lender of last resort. Otherwise, bank runs and debt panics will be rampant. Obstfeld had in mind a bailout mechanism for banks, but it is now abundantly clear that one also needs a lender of last resort and a bankruptcy mechanism for states and municipalities.
  • A logical corollary of the criteria set forth by Kenen and Obstfeld, and even of Mundell’s labor-mobility criterion, is that currency unions cannot survive without political legitimacy,
  • European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones.
Gene Ellis

Martin Feldstein: The Euro Zone's Double Failure - WSJ.com - 0 views

online.wsj.com/...3893404577098252697593684.html

shared by Gene Ellis on 31 May 12 - No Cached
  • but that they don't constitute an official EU treaty and therefore cannot be enforced by the commission and other EU institutions.
  • Italy has a good shot at persuading investors that it has a favorable long-term budget outlook. Its fiscal deficit is now less than 4% of GDP.
  • If the new government can now enact changes in labor rules and investment incentives that raise GDP growth to a 2% annual rate, Italy's ratio of debt to GDP could fall to 60% in less than 15 years.
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  • Greece cannot hope to get its deficit under control fast enough to stabilize its debt and attract private lenders. Instead of remaining a permanent ward of Germany and the IMF, Greece should default on its debt, leave the euro zone, and return to a more competitive drachma.
  • But he should also make it clear that lending against private collateral should not be used by commercial banks to free up funds to purchase newly issued government bonds
  • As Italy shows its determination and its ability to reduce future deficits, it should be welcomed back to the capital markets.
Gene Ellis

European Banks Unprepared for Pandora's Box of Greek Exit (Bloomberg) - 0 views

www.italpreziosi.it/...as-box-of-greek-exit-bloomberg

shared by Gene Ellis on 09 Jul 12 - No Cached
  • Lenders in Germany, France and the U.K. had $1.19 trillion of claims on those four nations at the end of 2011, Bank for International Settlements data show.
  • Lenders in Germany and France saw an increase in deposits of 217.4 billion euros, or 6.3 percent, in the same period.
  • To prevent contagion, countries in the euro area would have to form a full-fledged political and fiscal union immediately and implement uniform guarantees on bank deposits throughout the region, Thomas Wacker and Juerg de Spindler, economists at Zurich-based UBS, said in a separate note. They said such a response can be ruled out.
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  • Bank of France Governor Christian Noyer told journalists in Paris last week that “whatever happens in Greece” won’t place any French financial institution in difficulty.
  • What’s changed is that banks in the so-called core EU countries of Germany, France and the U.K. used funds from the ECB in December and February to insulate their southern European units against losses should one or more country exit the euro. “If you’re a U.K. lender and you’ve lent 10 billion euros to your Spanish subsidiary and Spain exits, you’re suddenly only going to get paid back in 50 percent devalued pesetas and you’re on the hook for 5 billion euros,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.
  • One way multinational banking groups are mitigating that risk is by replacing their own funding lines to subsidiaries in the region with ECB loans. Deutsche Bank, Europe’s biggest bank by assets, tapped “a small amount” of ECB cash to help fund corporate and retail business in continental Europe, where it has sizeable operations in Italy and Spain. BNP Paribas, Europe’s third-biggest bank, used the programs to help fund its Italian unit as it reduces intergroup backing.
  • European banks also have cut their sovereign-debt holdings and exposures to Ireland, Italy, Spain and Portugal.
  • ermany, France and the U.K. reduced exposure to Greece by more than half in the two years through the end of 2011 to $68.2 billion, BIS data show.
Gene Ellis

Italy's 'this time it's different' moment: With rejoinder by Giavazzi | vox - 0 views

www.voxeu.org/...rent-moment-rejoinder-giavazzi

italy time moment rejoinder vox

shared by Gene Ellis on 05 Sep 12 - No Cached
  • Gene Ellis on 05 Sep 12
     
    Wyplosz - good article on self-fulfilling phrophicies
Gene Ellis

Colm McCarthy: The eurozone is still at risk and we need to get our house in order - An... - 0 views

www.independent.ie/...ur-house-in-order-3168399.html

syndicate

shared by Gene Ellis on 15 Jul 12 - No Cached
  • Friday's two-notch downgrade of Italy by ratings agency Moody's explicitly mentions default risk and eurozone fracturing.
  • History teaches that muddle rather than conspiracy lies behind even the greatest turning points and the doubters are being too quick on the draw.
  • accompanied by some rowing back from the apparently significant decisions taken at the summit on June 28 and 29.
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  • These thoughts are spurred by the rather weak communique, which followed the meeting earlier last week of eurogroup finance ministers in Brussels,
  • There is, as yet, no mechanism in place to ensure bond market support to Spain and Italy and nobody, except the ECB, has the funds to keep their governments funded, should they be forced from the market. The ECB has suspended its bond-buying programme so the high-wire act continues, without a safety net.
  • The eurozone could face a major crisis at short notice if either country experiences serious trouble selling government paper, which both must do in large volume and on a continuing basis.
  • The avoidance of default on the core sovereign debt, the debt undertaken without duress by the Irish State, is a legitimate objective of national policy.
  • It had become clear, early in 2010, that the blanket bank guarantee would bankrupt the Irish State, and the Government finally began to acknowledge that haircuts for senior, but unsecured, bank bondholders had become unavoidable.
  • As far as I am aware, this is the first time in the history of central banking that a sovereign state has been compelled, to the point of national insolvency, and by its own central bank (by our Government's choice, the ECB), to make whole those who foolishly purchased bonds issued by private banks, which had gone bust and been closed down.
Gene Ellis

IMF's Blanchard: Global Economy Gripped By Meta-Uncertainty - WSJ.com - 0 views

stream.wsj.com/...SS-2-33475

shared by Gene Ellis on 17 Jul 12 - No Cached
  • In 2008-09, there was a collapse of global trade. We were all very surprised. Output was not doing well, but the collapse in global trade was enormous. We realized at the time that the elasticity of trade with respect to global output was not 1, as you might think, but more like 3 to 4. So this explained it. And then it recovered like crazy.
  • This is still true. If global output goes down by 1%, global trade goes down by 3% to 4%.
  • What Europe needs to do:
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  • These countries have to do what they need to do. There’s no question there has to be fiscal consolidation. We can discuss the pace, but it has to happen. The other is competitiveness, which I see as much tougher of the two.
  • It has to be through a combination of structural reforms, hoping they will work, and nominal wage adjustments, although one cannot be incredibly optimistic about the scope there. We know that that’s going to take a while.
  • Take the big two, Italy and Spain. You can always dream of more, but I think they’re serious about doing it, both on the fiscal front and the structural-reforms front. I think it may well be that even if they do everything they can, and do it right, it’s still not enough. They have to have help — I would say when needed rather than if needed.
  • The banks have to be recapped, and they have to be recapped not using sovereign money. I think that is really very, very high on the agenda. I don’t think they can make it without help to the banks.
  • If the banks were healthier, I think they would lend at lower rates
  • And the sovereigns have to be able to borrow at reasonable rates. As long as they behave and they do all the things they’re asked to do, they have to be able to borrow at lower rates than they currently do. Some way has to be found to do it.
  • It’s not that I don’t care about the way it’s done. But I care about the result. These countries, if they’re doing the right things, they have to be able to finance themselves.
  • Some people say a euro depreciation would help Europe a lot. I think there is an argument for it, even in a multilateral context. You have to depreciate vis-a-vis somebody, so somebody has to appreciate. My sense is we would like most of the depreciation to be vis-a-vis emerging-market countries. Even if there was a depreciation vis-a-vis the dollar, I still think it would be a good thing.
  • We’ve done simulations. Other people have done simulations as well. 10% real depreciation would lead to a 1.4% increase in growth for a year — which at this stage, given the numbers, would be nice. The footnote, and it’s a very big footnote, is that … how much you benefit depends on how big your exports are related to your GDP and where you export — whether you export in the euro zone or outside. Unfortunately the countries that benefit the most are the countries that really don’t need it — Germany, the Netherlands. The countries that benefit the least are Greece, Portugal, Italy, Spain
  • There’s no question, the periphery countries have to improve their competitiveness. That’s not something even monetary policy at the level of the euro or fiscal policy can do. This they have to do through productivity improvements or nominal wage adjustments.
  • It is no secret that they have tended to respond to crises rather than be much more proactive.
  • And now there’s a sense in which they’re thinking about the full architecture.
  • At this stage I think there is a genuine commitment to thinking about the whole beast. That’s why these words — fiscal union, banking union — have come in.
  • Where I think there is still a problem is that all these things will take a lot of time. And some of these things may not happen because they’re unpopular. And meanwhile, there is a fire in the house. So they have to be willing to do more in the short term.
Gene Ellis

Spain to Test Bond Markets as Economy Minister Warns on Debt - NYTimes.com - 0 views

www.nytimes.com/...daily-euro-zone-watch.html

shared by Gene Ellis on 17 Jul 12 - No Cached
  • the country’s economy minister, Luis de Guindos, warned Tuesday that European debt markets were not working properly because foreign investors were being deterred by the euro zone’s slow and complex decision-making procedures.
  • In recent weeks the interest demanded by investors on longer-term debt has crept up around 6 percent for Italy and 7 percent for Spain, close to the level that analysts say could make government finances unsustainable in the medium term.
  • In an interview in the Spanish daily La Vanguardia, Mr. de Guindos said that foreign investors were increasingly staying away from bond auctions, leaving only domestic buyers.
  • ...3 more annotations...
  • Debt auctions in Italy at the end of last week came off better than some observers had expected and, although borrowing costs remain high, the successful debt sale has increased the prospect that the euro zone can avert another crisis during the summer break.
  • Mr. de Guindos said that debt purchases between countries within the 17-nation single currency area had virtually ground to a halt.
  • The ministers are expected to hold talks on Friday to agree to extend 30 billion euros for the rescue by the end of the month. By agreement of European Union leaders last month, the debt will go direct to banks, rather than being added to the Spanish government’s finances, once plans for a new regulatory structure for Europe’s banks is put in place.
Gene Ellis

Banks' Fire Drill for Greece Election - NYTimes.com - 0 views

dealbook.nytimes.com/...fire-drill-for-greece-election

banks fire drill greece election nytimes nytimes com com

shared by Gene Ellis on 16 Jun 12 - No Cached
  • In New York and London, banks have set up dedicated crisis teams, and rehearsed elaborate responses.
  • Citigroup has $84 billion in loans, bonds and other types of exposure to troubled European countries, plus France. The bank’s filings indicate that all but $8 billion of that exposure is offset with collateral it has collected and hedges on the portfolio.
  • Some banks are testing their systems to deal with the possibility of new currencies and preparing guidance for clients on how to operate in such an environment.
  • ...6 more annotations...
  • Banks like Goldman Sachs and Morgan Stanley are also looking into the severe legal challenges that would arise if a country exited the euro. Contracts that govern loans, bonds and derivatives in Europe rarely take into account such a situation.
  • Consider an Italian corporation that owed a foreign bank 5 million euros, with a loan agreement struck under Italian law. If Italy left the euro, the bank might have less chance of getting euros back after the exit. In that case, the financial firm might be exposed to a new, less valuable currency.
  • Recognizing that threat, some banks are trying to move contracts into new jurisdictions like the United States or Britain. By transferring such loan agreements to English law, the banks may increase the chances of getting repaid in euros after an exit, according to legal experts.
  • The banks are also trying to protect their balance sheets if they do get stuck with large amounts of assets denominated in a new, weaker currency.
  • By doing so, they can better match their assets (the loans) within a specific country with their liabilities (the deposits). Then if a country left the euro zone, the value of the loan might fall in euros, but the banks wouldn’t owe as much to depositors in euros.
  • Mr. Lim notes, however, that some large banks, including Deutsche Bank, still have a lot more loans than deposits in countries like Italy and Spain.
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