Oops, Angela did it again

The rate of non-performing loans in the Spanish banking system in August rose to 16.6 percent per GDP. That is, the volume of credit that recorded a three-month payment delay, which had reached €16.3 billions in the last quarter of 2007, has grown to €178.6 billions. Outstanding credit, though, has decreased by 71 basis points.

So while assets in five years suffered a 9 percent contraction, late payments rocketed by a staggering 994 percent. Non-performing loans represented in 2007 some 1 percent of all credit; they are now a 10 percent. This is the undeniable picture of a banking system heavily hit by an economic crisis.

Only during the period from January to August in 2012, late payments have risen by 28 percent–in the whole year 2011, the rate was up by 21 percent. The credit flow has fallen 4.7 percent in those eight months.

I apologise for having thrown all these data onto you. But we still are far from a favourable situation. The European Union authorities made a few important decisions back in June, about the European Central Bank giving support to countries struggling with high market credit costs, and particularly Spain is holding on to those promises.

Yet, instead of translating words into action, what we have witnessed these days is how core euro leaders took advantage of another EU summit to backtrack.

German Chancellor Angela Merkel has cut short the possibilities of the European Stability Mechanism fund directly financing bank recapitalisation. Governments will need to add a fresh pile of debt to their already dangerous public debt burden if they wish to go ahead with their banking system reforms without further panics.

Furthermore, the set up of a European banking supervisor–which, according to Berlin, should be in place before the rescue fund frees governments from extra debts–could be postponed until next year, at least.

It’s all Mrs Merkel doing, and it means that Europe will be dragging its feet in no clear direction. Someone tells us, and the markets, what reason there is for this.