26/10/2014: Mind the ECB ‘Stress Tests’ Gap

The pain of European economy’s Japanification is going to be proportionate to the cheering of the ECB ‘stress tests’ results.
The real problem faced by European economy is that of the depressed domestic demand (investment and consumption). This problem is fuelled by: 1) declining real incomes of those working, 2) continued sky-high numbers of those who are not working (unemployed, discouraged and never-once-employed workers left out in the cold), 3) growing unease amongst older workers about the state of their pensions, 4) rising burden of the state (including state debts), 5) growing pressure of redistribution of income from households and SMEs to politically favoured white elephant projects (e.g. renewables subsidies, large infrastructure spending, farm supports, regional integration etc), 6) un-abating waste at the EU and national levels anchored to corporatist politics selectively rewarding specific interest groups interests at the expense of entrepreneurs, younger workers, ordinary households and domestic firms, and 7) demographic collapse spreading across the continent as populations age and children remain dependent on ever older parents to support their education and transitioning into joblessness.
This real problem is driving down domestic demand, and with it depressing economy, but also spreading rot across the banks balance sheets.
And yet, despite the obvious and ever-deepening macroeconomic crisis of depressed demand, the ECB stress tests released today provide no insight into what can happen to the banks balance sheets should Japanification set in. Worse, the entire exercise of ‘stress tests’ is once again not much more than a PR stunt dreamed up by the folks who are ‘would be’ chief economists for the sell-side equity research.

This post was published at True Economics on Sunday, October 26, 2014.