The case of Banco Espirito Santo is symptomatic of the industry in southern Europe. Bad loans are making their way through the balance sheet. The cheap money from the ECB does not reach the companies. But it’s not just the banks to blame.
By Klaus-Rainer Jackisch, HR
Avenida da Liberdade is Lisbon’s boulevard. Based on the Parisian model of the Champs-Elysees, it connects the center with the northern districts of the Portuguese capital. Those who are self-conscious stroll here to see and to be seen. Anyone who is even more self-conscious has their office here. And those who are very self-conscious even have their headquarters here.
Portugal’s largest bank, Banco Espirito Santo, was also very self-conscious. She resides in a modern building on the beautiful Avenida at number 195. Now the call is gone: The institute with the pious name "Holy Spirit" was heading for bankruptcy. In a flash it was given a new face. NovoBanco has been called since the beginning of the week. This is supposed to conceal the nearly five billion euros that the Portuguese central bank pumped into the ailing shop. This was the only way to prevent a collapse. The triggers are bad loans and apparently also illegal business.
ECB staff pull their hair
The case is symptomatic of the state of the industry in southern European countries. Hundreds of new ECB employees are already pulling their hair out in Frankfurt’s Japan Tower. As if it didn’t already have enough to do, the central bank took over banking supervision in November. What is currently coming to light when examining the credit institutions makes many of the new supervisors shudder: Bad loans are dragging themselves through the balance sheets like a den.
The central bank is always inventing new emergency measures. However, the money is not getting through to companies and consumers. Because the banks fail. Because they are up to their necks, they do not pass on the cheap money from the ECB. That is why the economy is not gaining momentum.
No confidence in clammy economies
Deep down, the monetary authorities know: this is only half the story. Because companies do not invest because they have no confidence in the economic development of the tight economies of Southern Europe. Why should an entrepreneur be tempted by cheap money when he assumes that he will be left with his goods anyway?
It is clear to the monetary authorities: They are at the end of their game. The ECB has done its job, now it’s the turn of politics. This message is coming more and more clearly from the Euro Tower. Austerity efforts, structural reforms, better competitive conditions – this is the only way to get the economy going again. But creating these framework conditions is the task of the politically responsible. Cheap ECB money alone does not help.
Draghi calls for a European supervisory body
Central bank president Mario Draghi goes even further. In London, of all things, he called for greater integration of the euro states in mid-July: A European supervisory body should be authorized to intervene across national borders if governments do not adhere to the rules of the game in the euro area. Politicians must finally act and use the time that the ECB has given them, said Draghi.
Time is of the essence: In July, the inflation rate in the euro area was only 0.4 percent. That is far from the target of just under two percent. A deflationary spiral in the eurozone is becoming more and more likely. Economists understand this to be a paralysis of the economy, because the population speculates on ever further falling prices and postpones spending. This harms the economy even more and costs jobs. A vicious circle. The ECB fears years of stagnation in the euro area without significant growth and is justifying this the extraordinary measures decided in June.
So that the inflation rate does not slide further, the monetary authorities are now demanding higher wages. Bundesbank President Jens Weidmann is currently roaming the country and promoting wage increases of three percent. These revolutionary statements by a conservative central banker show the seriousness of the situation.
The Portuguese scandal bank with the holy appearance, on the other hand, has completely different problems for the time being: They have chic new signs with the changed name screwed on to the Lisbon headquarters. After all, you hold your own on Avenida da Liberdade.