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EU faces danger from non-performing loan overhang

EU faces danger from non-performing loan overhang
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New data reveal Europe may be sitting on top of a time bomb of non-performing debt, most of it locked into the struggling economies of the south.

Thousands of businesses and households are struggling with payments, and banks have piles of non-performing loans eating into their bottom lines.

For ordinary people this can mean bankruptcy, or the loss of the family home.

“I am afraid that I will lose my house. I have no idea what to do anymore. I need lawyers, courts… I have nothing to hope for. The only thing I expect is that at some point I will be left on the street… nothing else… I would like help… I don’t know,” says debtor Eleni Likoudi.

Austerity, after hitting the poorest in society hard, is now causing pain to the middle classes, too, in Italy, Spain, Portugal, and Greece, where the recession has been the deepest.

“The last two years, Greek society has turned from a society of debtors to a society of indebted households. According to the latest official data there is 77 billion euros in non-performing loans. But people familiar with the problem believe this number will rise even higher,” says euronews’ Symela Touchtidou.

For southern Europe’s middle classes, the tax burden is rising as governments seek extra cash from those they think can afford it. Except the middle class is less and less able to pay as well, and faces employment pressure as struggling companies and governments lay off workers. Workers previously thought immune from the winds of economic change are looking over their shoulders.

“The profile fits all the members of the middle class, either at the lower or the highest end of the spectrum… it includes people that have lost their jobs, employees that see that now their incomes have fallen below their debt obligations and now we have the entrepreneurs, and that is the biggest blow to the middle class,” said Eleni Charalabidou. a legal consultant to the Workers’ Union.

Added together the mountain of unsecured loans dwarfs the Greek bailout, and yet none of the EU’s aid to the south seems to have stimulated much growth. Now is the time to use the money better, say some tired of austerity.

“We are proposing the use of structural funds to subsidise interest payments of performing loans in South Europe, when interest rates are too high and it is a matter of time before they turn “red’. Greece and the South are not asking for extra money, just the flexibility to use available funds to deal with the crisis,” said Greece’s development Minister Nikos Dendias.

Looming on the horizon for Greek homeowners is the expiry at the end of the year on a moratorium on first home bank foreclosures. After December 31st 2014 in theory debtors could have their homes seized for non-payment, with the prospect of thousands of people being turned out on the streets, and the social unrest that may spark.