Austerity is NOT the problem! It’s Zombie Banks!

By Shlomo  Maital


   At long last, we are beginning to understand what Europe’s real economic problem is.

  No, it’s NOT budget deficits and debt. And no, the ‘solution’ is NOT austerity (budget cutting, unemployment and massive suffering and social unrest).

   The problem is… Zombie Banks.  Banks that exist, but are zombies, because they do not do what banks are supposed to do – lend money.

   A zombie   (Haitian Creole: zonbi; North Mbundu: nzumbe) is “an animated corpse resurrected by mystical means, such as witchcraft. …a hypnotized person bereft of consciousness and self-awareness, yet ambulant and able to respond to surrounding stimuli.” 

   According to Stephen Fidler (Wall Street Journal, June 7-9, 2013, p. 4), “policy mistakes by European governments have stymied (bank) lending” …. “funds are being bottled up in Germany and other ‘safe’ economies….’what’s slowing down growth in Europe is a lack of credit’, according to Antonio Borges, a former European director of the IMF.”  In other words:  Zombie banks.

   Why aren’t European banks lending?  Because their balance sheets are stil riddled with unrealized huge losses, and the banks need the liquid cash much more than the loans, to spiff up their disastrous balance sheets.

   Why are European banks’ balance sheets so riddled with holes? Because the waffling European Central Bank hasn’t acted decisively to clean up the mess, buy up bad bank assets, write them off, and then move on. 

   In the U.S., notes Fidler, companies can raise funds in the capital market even if banks won’t lend to them.  But in Europe, this seems impossible.  The Europeans still don’t get it. And the economists are not helping at all.  In America, fully half of total financial assets belong to insurance companies and pension funds,  and these funds are accessible by companies directly.  It’s not the case in Europe.

   So, look for Europe to continue to stagnate, with high unemployment. According to wikipedia, “since the late 19th century, zombies have acquired notable popularity, especially in North American and European folklore.”    But zombie banks are definitely not popular.  Europe won’t recover until the zombies become living breathing normal human beings.