The three main gauges – M1, M2, and M3 – have each begun to decline in absolute terms after slowing sharply over the Autumn.
The broad M3 measure tracked closely by the European Central Bank as an early warning indicator shrank last month by €59bn to €9.78 trillion, a sign that Europe's long-feared credit squeeze is underway as banks retrench to meet tougher capital requirements.
"This is very worrying," said Tim Congdon from International Monetary Research. "What it shows is that the implosion of the banking system on the periphery is now outweighing any growth left in the core. We are seeing the destruction of money and it is a clear warning of serious trouble over the next six months."
"This is the first sign of an emerging credit crunch," said James Nixon from Societe Generale. Banks cut their balance sheets by €79bn in October, while mortage lending saw the biggest drop since December 2008.
Simon Ward from Henderson Global Investors said "narrow" M1 money – which includes cash and overnight deposits, and signals short-term spending plans – shows an alarming split between North and South.
While real M1 deposits are still holding up in the German bloc, the rate of fall over the last six months (annualised) has been 20.7pc in Greece, 16.3pc in Portugal, 11.8pc in Ireland, and 8.1pc in Spain, and 6.7pc in Italy. The pace of decline in Italy has been accelerating, partly due to capital flight. "This rate of contraction is greater than in early 2008 and implies an even deeper recession, both for Italy and the whole periphery," said Mr Ward.
The shrinking money supply comes as banks step up the pace of deleveraging. As feared, lenders are slashing loan books and selling assets to meet 9pc core Tier 1 capital targets imposed by the EU rather than raising fresh capital in a hostile market. "Forcing banks to recapitalise in a hurry is a major blunder," said Mr Congdon.
Societe Generale said bond issuance by European banks has come to a standstill, dropping to €11bn since the end of June. Lenders face a funding gap of €180bn so far this year as they fail to roll over debt coming due. Deutsche Bank expects deleveraging to reach €2 trillion over the next 18 months alone.
The grim monetary data came as Moody's warned that Euroland's crisis is metastasising, with risks of a chain of sovereign bankruptcies unless Europe "acts quickly" to stop the rot. "The probability of multiple defaults by euro area countries is no longer negligible."
The agency said defaults would threaten to break up the euro itself. "Any multi-exit scenario would have negative repercussions for the credit standing of all euro area and EU sovereigns."
The wording is a reminder that Britain would be engulfed by the maelstrom through a nexus of banking and trade ties, however hard it tries to build a firewall.
Moody's warned that the crisis has already dragged on so long that it will have "very negative rating implications" for European states even if the euro holds together. The agency does not expect any decisive action by the EU until the region is hit by a "series of shocks" that first make matters even worse.
It is unclear which states are first in the firing line for a downgrade but France, Britain, and Austria may all struggle to hold on to their AAA ratings, especially if Europe slides into a deep recession that pushes debt dynamics closer to the edge.
The OECD club of rich states exhorted the ECB on Monday to take radical measures to contain the crisis. "The ECB should buy bonds and set a limit to yields, or a floor to bond value," said chief economist Pier Carlo Padoan.
The group said the bank should prepare to take "radical, non-standard measures" if necessary, and called for the EFSF rescue fund to be given "large enough firepower" to halt contagion.
"Europe's leaders have been behind the curve. Everyone should be clear that the euro is at stake and everyone should do what is needed to avoid the worst," he said.
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