All the increase in Eurozone Public Sector Debt since 1995 is due to Interest Payments!

This is a real bomb-shell.

We are continuously being told that Public Sector Debt is the result of governments spending too much on health, education, social services etc. Austerity is essential to balance the books.

Here is the proof that this is a total myth. The real culprit is the insane system, built into the Maastrict and Lisbon treaties that forces our governments to borrow money from Commercial Banks, who can create the money they lend out of thin air, and then charge taxpayers interest.

I took the latest data from Eurostat, which provides information about the level of Public Sector debt for nearly all European countries since 1995. It also provides details of the amount of interest paid on Public Sector debt every year for the same period. I've already had a series of posts on the data since they came out on the 21st April. The first post listed the levels of Public Sector debt for Eurozone Countries which had increased to nearly €12.5 trillion at the end of 2015. A second post looked at the interest payments which totalled over €335 billion in 2015, and brought the total since 1995 (when Eurostats figures start) to nearly €7.2 trillion. A third post looked at the effective interest rates we have all been paying since 1995, and noted that taxpayers have been paying way above market rates for years.

But the current post really puts a finger on where it hurts most. Specifically, the following table provides what I consider to be the ultimate demonstration of the stupidity of the system.

The first line shows that total public sector debt across the 28 countries of the European Union stood at nearly €12.5 trillion at the end of 2015. If we compare this number with the total debt at the end of 1995 (it was over €4.75 trillion), we can calculate the increase in debt over that 21 year period - namely €7.73 trillion.  The next column gives the total cost of interest periods for the same period - €7.18 trillion. And that means that 93% of the increased public sector debt was used to pay the banks.

The second line shows that the situtaiton for the Eurozone is even worse. Since 1995, public sector debt in the 19 Eurozone countries has increased by over €5.37 trillion. But the interest payments for the same period now total over €5.7 trillion, meaning that 106.3% of the increase in public sector debt was used to pay the banks.

The rest of the table shows how the figures breakdown country by country. Things are complicated by the fact that there are some holes in the Eurostat data. Specifically, figures for debt in Denmark are only provided since 2000. During that period, Denmark's public sector debt only increased by €13.8 billion, and yet during the same period Denmark's taxpayers handed over 5.5 times more money in the form of interest payments.  Very generous of them.

Norway's figures only start in 2011. Since then, public sector debt only increase by €4.3 billion. But Norway's taxpayers nevertheless handed over 3 times as much money in interest payments.

Neverthless, for most countries, the Eurostat data provides both Public Sector Debt and Interest Payments since 1995. And the results are a real surprise.

In the Eurozone, Belgian public sector increased by 50%, but if they had not been paying the interest charges, public sector debt would be just €117 billion, 27% of what it is today.

In Italy, if taxpayers had not had to pay over €1.65 trillion in interest, their public sector would  be a mere €517 billion, instead of getting on for €2.2 trillion.

Without interest payments, Germany's mountainous €2.15 trillion of public sector debt would have dropped to €820 billion.

And so it goes on.

Isn't it time that we changed the system?

How could we change it? Just put an end to a system where commercial banks lend our goverenments money and charge interest. Central banks like the ECB and the Bank of England should lend to goverenments at the same rates they charge the financial markets.

Effective Interest Rates on European Public Sector Debt 1995-2015

Here's something I wanted to do when Eurostat released the figures for European Public Sector Debt and Interest charges on the 21st April. Unfortunately, I was very busy putting together a €11.4 million project to create the Toulouse Mind & Brain Institute (TMBI). I finally got the thing submitted yesterday, having managed to round up well over 300 members from 25 different labs in Toulouse, of whom 240 have permanent positions. If you are interested, feel free to download my handiwork here.

But now have a bit of time for some more fun things ;-)

I did something pretty simple, given that the Eurostat gives an almost complete set of data for Public Sector Debt and Interest payments for every EU country since 1995.

So, if you know how much the government owed at the end of a particular year, and how much tax payers money was handed out during the year, you can easily calculate the effective interest rate that was being paid. Just divide one by the other. Here's the result.

The good news is that the average rate has been dropping. In 1995, we were paying nearly 8% interest on public sector debt, with some countries (Greece, Hungary, Romania, Slovakia and Slovenia all paying over 10%. The Romanians win the prize for the highest rates, because they were paying interest at nearly 24%. Were they using a credit card maybe?

But, rates over 10% have been a thing of the past since 2003, and in 2015, the average rate was a bargain 2.7%. Only Croatia, Hungary and Romania were paying over 4%. Wondeful, right? We should all be celebrating.

But then there is the bad news. Haven't we all been told that Central Banks have been offering money at knock down prices to anyone in the Financial Sector who can be bothered to ask. The list of current rates for European countires can be found  here

• Eurozone : 0.0% 
• Czech Republic : 0.05%
• Denmark : 0.05%
• Hungary : 1.05%
• Norway : 0.5%
• Poland : 1.5%
• Sweden : -0.5%
• Switzerland : -1.25% 
• UK : 0.5%

You can find the historical information here where you can see the historical evolution of rates for 1 year, 2 year, 5 year and Maximum duration loans from the Fed, ECB, Bank of England and so on.

Here's the ECB 5 year loan rates since 2000 - well under 1% since 2011.

And here are the 5 year rate at the Bank of England since around 1990 - 0.5% since 2009 or so.

In both cases, it is clear that taxpayers in the Eurozone and the UK have been paying way over the market rates on Public Sector Debts. Why?

If you've got a mortgage, and they are charging you 10%, but you can get loans at 2%, you renegotiate, and pay off the 10% loan with the 2% right?

So, why don't our governments do the same thing? Why don't they just say to the Primary Markets or the GEMMS (the banks that have a monopoly on lending our governments money), that they will not pay more that 1% above the market rate. When the market rate is 0%, that's 1%.

Are we being ripped off? You bet we are.

But this racket has been going on since 1694 when the Bank of England (a private bank) discovered that the King was too stupid to realize that when they lent him money to fight wars, they just invented the money out of thin air. UK taxpayers have been paying an average of 4.4% in GDP every year since 1694 with peaks of 10% of GDP following the Napoleonic wars, and around 9% for an entire decade after World War 1. The roaring twenties really were roaring if you were anywhere near the bankers who had lent the warring nations non existent money for fighting the war. Of course, as we know, they couldn't keep it going, and things went belly up in 1929.

This wonderful system, invented by my compatriots I'm ashamed to say, got foisted on the rest of the world from the 1970s onwards. And now, with the Lisbon treaty, no government is allowed to borrow directly from the central banks at the market rate of 0% (or whatever). Instead, they have to go via our friends in the Banking system who impose a slight markup. Currenly, in the Eurozone, that slight markup is 2.66%. That racket cost Eurozone taxpayers €250 billion last year - equivalent to 2.4% of GDP.

Does anyone else think that this is insane? Does anyone else think that this racket should be stopped immediately? No government should ever pay interest at a rate above the one provided by Central Banks to commercial profit making banks. Full stop.