Europe's Credit Bubble

International banks held a record $30.4 trillion in claims on all countries during Q1-2008. That was an increase of $16.6 trillion, or 120.3%, since the start of 2005. Loans to Europeans (mostly from European banks) increased $8.4 trillion over this period to a record $15.7 trillion. Since the early 2008 peak, all loans to all countries and to European ones are down $5.3 trillion and $4.1 trillion, respectively, through the end of last year. My hunch is that much of that represents write-offs.

The lending frenzy by international banks was especially intense in the PIIGS during Europe’s Credit Bubble of the past decade. Foreign claims of banks on these five countries soared $2.2 trillion from $1.7 trillion during Q1-2005 to a record $3.9 trillion during Q1-2008. That total was down to $2.4 trillion at the end of last year.

Here’s the punch line: Europe’s Credit Bubble may be as big or even bigger than America’s Mortgage Bubble. At the start of 2005, they were both around $8 trillion. By the first quarter of 2008, they both peaked, with the European total at a record $15.7 trillion and the American total at a record $10.6 trillion. Since then, loans held by international banks to all European countries were down to $11.5 trillion at the end of last year. US mortgage credit outstanding was down to $10.1 trillion.