by Peter Franklin
Friday, 10
December 2021
Chart
07:00

The Japanification of the Eurozone

ECB holdings of government debt are now very close to Japanese levels
by Peter Franklin

Governments around the world have borrowed their way through the Covid crisis. Increasingly, they’ve relied on their own central banks — like the US Federal Reserve or the Bank of England — to buy-up government bonds. 

But where do the central banks get the money they need to do this? The answer, of course, is from nowhere. It is created out of nothing through the magic of quantitative easing or QE. Because nothing is an inexhaustible resource, central banks have been able to print trillions of dollars of “free” money, which has been used to purchase bonds.

As a result central banks own an ever-greater share of their own governments’ debt. An extraordinary chart from Robin Brooks shows just how dramatic the surge has been:

The Bank of Japan — a pioneer of QE — led the way. But as you can see the European Central Bank has been catching-up fast. 

It started around the time of the Eurozone crisis, when the money markets lost confidence in vulnerable member states like Greece. By turning on the printing presses, the ECB made itself a major buyer of debt issued by member states. As a result, there wasn’t (and still isn’t) as much need to rely on the markets. The move also sent a signal that the Eurozone authorities really would do “whatever it takes” to prevent a second crisis.

After Covid hit Europe, the ECB responded with a further surge of QE. As a result, central bank holdings of government debt are now very close to Japanese levels. 

What about Britain? According to the latest quarterly report from the UK Debt Management Office, the Bank of England now owns a third of UK government debt, which is not that dissimilar from the Eurozone. However, while HMG is in debt to a central bank under its ultimate control, the Eurozone countries are in debt to a central bank largely controlled by foreigners — and especially the Germans. 

As the largest Eurozone economy, with some of the lowest debt levels, Germany wields increasing influence over its neighbours’ economic policies. Unluckily for fans of unrestricted public largesse, the new German finance minister is Christian Lindner, a dry-as-dust fiscal conservative. The fact that he’s just praised the “very impressive reform measures” (forced upon the Greek government in the wake of the Eurozone crisis), is a warning of what may be to come. 

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Giles Chance
Giles Chance
9 months ago

We are all sitting on a bomb which will explode, one day. Price inflation is the trigger for the explosion, because it’s one thing the central banks cannot control. Has global deflation ended ? Looks like it. So STAND BY.

Galeti Tavas
Galeti Tavas
9 months ago
Reply to  Giles Chance

It is all very weird, the inflation/deflation thing.

This is a deflationary Western time . Shrinking demographics, aging (not productive, but wealthy – they sit on money unlike the child having ages who spend and produce) But the big one – Tech raising productivity so much. I just bought a $1 calculator, when I was in university 4+ decades ago a calculator with top scientific functions (basic stuff now) was about $100, now money $1000. It would be maybe $30 now, (or $3 of those time dollars). I have my fathers professional, scientific, slide ruler which he used to do fantastically complex calculations in his work – it cost him a lot of money back in the 1940s when he was in University….

If the Central Banks did not just create vast amounts money out of air we would all be destroyed by huge deflation….

But then it causes a very great numbers of unintended consequences too – mostly that the elites have their wealth double every decade, and real wages have not risen since the 1950s for working people………….

Deflation? or what we are headed to, really at now, Feudalism. The elites own most of the world – much greater imbalance in wealth than during the time of Henry VIII – ! And getting worse by the minute! The wealth the elites hold to the lower people is like the Russian Aristocrats and their Serfs. Which is fine – but this wealth gives them the power over us as the Russian Aristocrats had – and they are using it – Covid Response it completely their doing, for nefarious reasons.

Su Mac
Su Mac
9 months ago

The central bank version of The Great Reset is called “Going Direct”. CBDC controlled by them to control society as it falls apart during the “next crash”

William Shaw
William Shaw
9 months ago

Sounds like a house of cards.

John Riordan
John Riordan
9 months ago

We in the UK don’t only have money printing to 1/3 of the total sovereign debt mountain, we also still owe as much as half a trillion to the Eurozone in the event that it goes insolvent. We failed to get ourselves out of our part-ownership of the ECB/EIB and the associated shareholder guarantees when we effed-up the Brexit negotiations. That’s what worries me most.