July 2016

The conventional account of the Eurozone crisis is one of reckless bankers lending to households and governments far beyond their ability to face those debts. In Greece, this led to ballooning public commitments which precipitated a sovereign crisis in 2009. In Spain, excess borrowing was mostly confined to the private sector, and specifically mortgage lending, in the context of a government-fuelled housing bubble which eventually put much of the state-owned banking sector on the brink of collapse. This forced national authorities to bail them out in stages between 2010 and 2012, transferring the losses onto public balance sheets. More recently, Italy has come to the fore as a focal point of financial weakness, with non-performing loans (NPLs) estimated at €360bn, equivalent to 21 per cent of Italian GDP and 17 per cent of all bank loans.