Europe's Lost Decade

Europe's lost decade as $7 trillion loan crunch looms Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade. Angela Merkel and Nicolas Sarkozy have bowed to pressure from Washington and the IMF for bank recapitalization. 

The risk is "Japanisation" without the benefits of Japan: without a single government, or a trade super-surplus, or 1pc debt costs, or unique social cohesion.

Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.

Stephen Jen from SLJ Macro Partners says the loan to deposit (LTD) ratio of Europe’s lenders is 1.2, much like Japanese banks in the early 1990s at the onset of the country’s Lost Decade (now two decades).