Are Eurozone national banks providing credit to their governments? Wonkish
In the comments to this post, there is some discussion about credit provided by Eurozone banks to their governments. I stated that ‘credit to the government’ is at this moment (!) the most important reason the stock of money in the Eurozone is increasing, some comments are skeptical. A re-investigations shows that it is all slightly complicated. According to the Eurozone law, national central banks are not allowed to provide credit to their governments. Normal banks are however allowed to do so. And according to ECB statistics, they do (see the graph, source). Bank ‘credit’ to the government is growing at a 10% a year rate, while the growth rate of credit to other Euro area residents is barely positive. I do however seem to have misread or at least misunderstood the word ‘credit’ in this graph.
According to this source (p. 111), credit is defined by the statisticians of the ECB as:
The source is alas not clear if this ‘credit’ is provided on the primary market (i.e. the banks are using freshly printed bank money to buy bonds directly from their governments) or on the secondary market (i.e. the banks are using new bank money to buy government bonds from non government/non bank parties like pension funds). But whatever – it does leads to an increase in the amount of money and the tables behind the graphs make clear that the amount of ‘credit’ to the government is at this moment by far the most important source of Eurozone money growth. In 2015, ‘credit’ to the government increased with 284 billion, while credit to ‘other Euro area residents’ increased (net) with 97 billions.