Here's the latest cross-post by Martin from Macronomics.
Credit - Optimal bluffing
“It's funny. All you have to do is say something nobody understands and they'll do practically anything you want them to.” - J.D. Salinger, The Catcher in the Rye
Listening amusingly to the positive "spin" put by the French government on French economy smashing expectations, expanding by 0.6% in the first quarter following zero growth in the previous quarter, as well as learning about Benoit Coeuré from the ECB giving Hedge-Fund players an extra "edge" on the central bank's "front-loading" move, we reminded ourselves of the "Optimal bluffing" strategy in the game card of poker for our chosen title analogy. David Sklansky, in his book The Theory of Poker, states "Mathematically, the optimal bluffing strategy is to bluff in such a way that the chances against your bluffing are identical to the pot odds your opponent is getting."
We remembered the "whatever it takes" moment of our "Generous Gambler" aka Mario Draghi, which was no doubt a display of "Optimal bluffing" as it requires that the bluffs must be performed in such a manner that opponents cannot tell when a player is bluffing or not. To prevent bluffs from occurring in a predictable pattern, game theory suggests the use of a randomizing agent to determine whether to bluff. Of course, the continuation of the high stake Greek poker game, in our mind is yet another display of "Optimal bluffing". But, the on-going Greek saga is also a perfect illustration of our August 2012 conversation's analogy "Banker's Algorithm". In our computational reference previously used, "The Banker's algorithm" is run by the operating system (OS) whenever a process requests resources. The algorithm avoids deadlock by denying or postponing the request if it determines that accepting the request could put the system in an unsafe state (one where deadlock could occur):
"When the system receives a request for resources, it runs the Banker's algorithm to determine if it is safe to grant the request. The algorithm is fairly straight forward once the distinction between safe and unsafe states is understood.
1. Can the request be granted? If not, the request is impossible and must either be denied or put on a waiting list
2. Assume that the request is granted
3. Is the new state safe?
-If so grant the request-If not, either deny the request or put it on a waiting list. Whether the system denies or postpones an impossible or unsafe request is a decision specific to the operating system."
Looking at the "modus operandi" of the European Commission, or put it simply it's OS, it appears that the Greek request will not be granted for the moment but ramble again.
Rest assured that when it comes to applying "Optimal bluffing", the US Fed is as well an astute poker player as well in this high stake poker game with global investors, given their latest FOMC comment:
"FED OFFICIALS GENERALLY DIDN'T RULE OUT RATE RISE AT JUNE FOMC"
Perfect illustrations of "Optimal bluffing" given of the chances against the Fed's bluffing are identical to the pot odds the market is getting we think.
In this week's conversation we will look at the challenges facing the Euro area which are indeed more challenging that of the Japan of the 1990s. We will also look at the deterioration of all the indicators in the latest survey from French corporate treasurers, depicting yet another bleak picture for unemployment given the decay in the overall cash position which had been on an improving trend since 2011 but has now turned more negative overall. Finally, we will look at liquidity in US credit with clear signs of vacuum in unexpected places thanks to the effects of central banks meddling aka "Cushing's syndrome" and overmedication.
- Euro-area is worse than the Japan of the 1990s.
- The deterioration of the latest survey from French corporate treasurers warrants close monitoring
- The liquidity in US credit markets shows clear signs of vacuum in unexpected places
- Final note: Applying the US definition of U-6 under-employment shows Southern Europe is in the doldrums
- Euro-area is worse than the Japan of the 1990s.
In our February 2015 conversation "The Pigou effect", we argued that government bonds had replaced private sector lending on European bank's balance sheet with the significant effect of "evergreening" bad loans in Europe à la Japan. We also touched recently in April 2015 in our conversation "The Secondguesser" on the unattractiveness of the European banking sector particularly Southern European banks due to extensive use of on DTAs (Deferred Tax Assets) in their capital base:
"When it comes to "capital", what matters therefore is the "quality" of the capital. In the case of some Spanish banks, the capital levels made up mostly by DTAs are not sufficient regardless of the AQR. Given in the case of Spain, these DTAs constitute a "credit" against the Spanish government and are exchangeable for Spanish public debt we doubt this marks the end of the banks/sovereign nexus" - source Macronomics, April 2015In continuation to the Euro-area comparison to Japanese woes of the 1990s we read with interest Nomura's take from their 19th of May 2015 Economic Insight note entitled "Euro area outlook more challenging than that of Japan in the 1990s" showing that indeed the Euro-area failed to learn its fast enough its Japanese lessons compared to the United States:
"Contrary to the US, the euro area failed to draw early lessons from the Japanese experience as it continuously rejected the analogy. But what put the euro area in a more challenging situation to that of Japan is in our view related to factors which are more idiosyncratic to the region (Figure 2).
Our analysis of how the euro area is faring in comparison to the challenges that Japan faced in the 1990s – which is presented in detail below – suggests that the magnitude of the shocks has been on average less pronounced than in the case of Japan (see Figure 1).
The area where we find that the euro area has been particularly badly hit relative to Japan is the banking sector, where problems cumulated in a number of countries across the region have been worse than in Japan and the slow policy response in the euro area will likely be remembered as the most important failure to draw lessons from the Japanese crisis. Europe did have the lessons of Japan to draw upon which Japan never had. We believe that there are still major issues in the banking sector that need tackling in earnest if the region wants to turn the page decisively away from the NPL and DTA issues that continue to plague a large swathe of the sector.
On labour markets, while downward nominal rigidities might have prevented the region entering a deflationary spiral for now, the adjustment has taken place on the unemployment side with under-employment today in the region around 20%, twice as much as Japan and the US. On a multi-year basis this will exercise fundamental downward pressures on wage growth of an order of magnitude which we believe is still underestimated by policy makers (the so-called “pent-up” deflationary process as described by Akerlof et al and Daly et al). Some of the symptoms behind the breakdown in nominal rigidities that took place at the end of the 1990s in Japan are also present in the current labour market developments in the euro area, arguing that on the aspect of nominal wages, the jury is still out." - source Nomura
Of course the main reason we had a much vicious recession with an explosion in unemployment in Europe was the ill-fated decision of the EBA to impose banks to reach a core tier one level of 9% by June 2012 which led to an epic credit crunch in Southern Europe.
We have also long argued there was an on-going "japanification" process in Europe. This was as well highlighted by Nomura's report:
"The euro area’s major underperformance
There has been a lot of debate over the past few years on the potential Japanification of the euro area, but most observers and policymakers have concluded that the euro area was unlikely to face a repeat of Japan’s experience and that the region has a higher chance of lifting nominal growth than Japan did. The ECB in particular has provided reasons for thinking that the euro area is in a different place than Japan was in the 1990s and that, while Japan provided some important lessons, the euro area was unlikely to face a similar outturn to that of Japan1.
As shown in Figure 3, euro area GDP was about 2% below that of Q1 2008 at the end of 2014 while Japan was down less than 1%.
Also, when looking at Japanese performance in the seven years following its own banking crisis, which reached its peak in 1997, output was 3% higher than at the beginning of the period and so grew by 5 percentage points more than the euro area over a comparable period (see again Figure 3).
The underperformance is also apparent when looking at other economic measures over different time periods. Figure 4 provides a comparison of productivity growth in Japan and the Big-4 euro area countries as measured by GDP per capita. With the exception of the 1990s and of Germany, productivity growth has been higher in Japan since the beginning of the 2000s.
Consumption per capita (in real terms, see Figure 5) in Japan rose on average by 2.6% per year between 1970 and 2013, higher than any of the Big-4 euro area countries.
Since 2009, Japanese consumption per capita has increased by 1% per year on average in line with the German consumer and higher than the other three countries in the Big-4. The euro area has outperformed Japan to date on nominal variables such as nominal GDP or nominal wage growth, but that is no reason for optimism in our view.
Based on the recent underperformance of the euro area, we believe the question should not be about the risks of Japanification but about whether the euro area can return to a sustainable path of growth that would put it at least on a par with Japan." - source Nomura
Exactly, and we do not think the euro area can return to a sustainable path of growth particularly when one looks at France and the lack of structural reforms recently highlighted by the IMF.
In earnest, do not expect any major changes given French President François Hollande is already on the campaign trail for 2017.
France remains in our views the new barometer of risk for core Europe. Back in August 2014 in our conversation "Thermocline - What lies beneath", we discussed the "Optimal bluffing" of the French government in its forecasting skills:
"French Minister Sapin is talking about budget deficit being above 3.8% in 2014, rest assured it will be North of 4%. If you have 0.5% of growth it should equate to 4.3%" - Macronomics, August 2012
For 2014, the budget deficit for France was in fact 4% but debt to GDP increased from 92.3% to 95.6%. We were not that far off in our estimate. The issue in the game of poker when a player bluffs too frequently like French Minister of Finance Michel Sapin, at Macronomics we just had to "snap off" his bluffs by re-raising our budget deficit estimate.
A symptom of European woes has been the very weak aggregate demand caused by the European crisis and the credit crunch triggered by the EBA in 2012 which accelerated the deleveraging of European banks and the lack of credit transmission to the real economy. This can be ascertained by the different trajectory taken between the United States and Europe also highlighted in Nomura's report:
"Leaving aside the Japanese comparison, it is also worth emphasising the extraordinarily weak performance of final demand (as measured by real consumer spending + nonresidential capex) in the euro area both relative to its own past (Figure 6) and relative to the US (Figure 7).
Assuming that euro area private sector demand picks up from now on and follows an uninterrupted recovery path comparable to the one experienced by the US over the past six years (i.e. with the growth rate 16% higher than its previous trend rate), it would take seven years for the euro area to resorb part of the private sector gap that has built up since the onset of the crisis and shrink it to 7%. Even assuming an extraordinary deterioration on the supply side, it is hard not to believe that there is a substantial amount of slack in that economy." - source NomuraIn our conversation "The Secondguesser" we also highlighted the difference between Europe and the US:
"In the US QE was more effective for a simple reason: stocks vs flows as highlighted earlier. The problems facing Europe and Japan are driven by a demographic not financial cycle. Rentiers seek and prefer deflation. They prefer conservative government policies of balanced budgets and deflationary conditions, even at the expense of economic growth, capital accumulation and high levels of employment." - source Macronomics
After all, credit growth is a stock variable and domestic demand is a flow variable. We have long argued that the difference between the FED and the ECB would indeed lead to different growth outcomes between the US and Europe:
"Whereas the FED dealt with the stock (mortgages), the ECB via the alkaloid LTRO is dealing with the flows, facilitating bank funding and somewhat slowing the deleveraging process but in no way altering the credit profile of the financial institutions benefiting from it! While it is clearly reducing the risk of banks insolvency in the near term, it is not alleviating the risk of a credit crunch, as indicated in the latest ECB's latest lending survey which we discussed in our last conversation." The LTRO Alkaloid - 12th of February 2012.
Of course, the availability of credit is only beginning to be restored in Peripheral Europe and has been encouraged by the ECB's recent QE but it is by no means dealing with the stock on Southern European banks impaired balance sheets!
Also, private demand due to high unemployment levels continue to weigh significantly in the euro area private sector as indicated by our musings from our November conversation "Chekhov's gun":
Put it simply, credit growth is a stock variable and domestic demand is a flow variable. Central-bank induced liquidity is pointless without the real economy borrowing and the issue at the heart of the problem is that most Southern European banks are in fact "capital constrained" and plagued by NPLs (Nonperforming loans) and artificially boosted capital by DTAs."If domestic demand is indeed a flow variable, the big failure of QE on the real economy is in "impulsing" spending growth via the second derivative of the development of debt, namely the change in credit growth.QE will not be sufficient enough on its own in Europe to offset the lack of Aggregate Demand (AD) we think.In textbook macroeconomics, an increase in AD can be triggered by increased consumption. In the mind of our "Generous Gamblers" (aka central bankers) an increase in consumer wealth (higher house prices, higher value of shares, the famous "wealth effect") should lead to a rise in AD.Alternatively an increase in AD can be triggered by increased investment, given lower interest rates have made borrowing for investment cheaper, but this has not led to increase capacity or CAPEX investments which would increase economic growth thanks to increasing demand. On the contrary, lower interest rates have led to buybacks financed by cheap debt and speculation on a grand scale.In relation to Europe, the decrease in imports and lower GDP means consumer have indeed less money to spend. We cannot see how QE in Europe on its own can offset the deflationary forces at play." - source Macronomics, November 2014
When it comes to the comparison with Japan in the 1990s, Nomura's report makes an important point relating to the size of the problem which has not been dealt with in Europe:
"Figure 14 shows that banks’ conditions in many euro area countries are significantly worse than at the worst point of the Japanese banking crisis between 1997 and 2002, when NPLs peaked at 8.4%.
In particular, NPLs in Cyprus, Greece and Ireland are above 20%, even higher than Japan’s NPLs subject to self-assessment and after the implementation of bad banks in some of these countries. More worryingly, NPLs in Italy and Spain are above the Japanese levels.
The IMF finds in its latest GFSR that banks with a higher ratio of non-performing loans have tended to lend less: for 60 euro area banks over 2010-13, those with the lowest NPLs (1st quantile) expanded their loan supply by six times the national average growth rate, while the credit of those with the highest NPLs (the 4th quantile) contracted at the pace of four times the national average growth rate. This negative relationship is believed to arise because the non-performing assets decrease banks’ profitability, use more capital (to absorb the bad assets), and damp banks’ intention to lend to borrowers with borderline credit quality.
DTA might be another potential risk to the banking sector
Bank equity, or net asset value (NAV), always acts as the first line to defend the financial entity in an adverse event. However, not all the equity is of the same quality as some can quickly lose their value in face of negative shocks and pose significant risks to the financial system. One example is a bank’s “goodwill”. Another important asset whose quality is generally recognised of being of a lower standard is the “deferred tax assets” (DTAs).
A deferred tax asset is an asset used to reduce the amount of tax due in the future. It mostly arises when a bank makes losses, for example by writing off bad loans. The losses, although processed as expenses in corporate accounting, are not tax deductible under tax law. As such, an “overpayment” of taxes emerges. It is then booked under deferred tax assets in the assets section, which correspondingly requires an increase in the bank’s equity. In theory, DTAs can reduce banks’ liability in the future but this only materialises if the bank can make enough taxable profits. That said, for banks that overestimate future earnings, their equity is inclined to be overvalued by DTAs.
This was the case for Japan back in the late 1990s: in 1998 when banks’ other sources of regulatory capital had been depleted, Japan introduced the rule of deferred tax assets and allowed them to be accounted for as regulatory capital. DTAs then became an important source of regulatory capital for Japanese banks. For example, in 2002 the major banks’ DTAs totalled 60% of bank equity (Skinner, 2008), rising quickly from 45% in 2001 and from 29% in 1998. This increase in weak forms of capital is thought to have prolonged the financial crisis (Skinner, 2008).
In the euro area, currently the CRR (Credit Requirements Regulation) allows competent authorities to set the percentage for the deduction of DTAs relying on future profitability at 10% in 2015 for DTAs that existed before 1 January 2014. The deduction rate will increase by 10% each year until 2023. For DTAs created after 1 January 2014 and relying on future profitability, a phase-in approach is applied, i.e. minimum of 20% in 2014, 40% in 2015, 60% in 2016 and 80% in 2017 and 100% in 2018.
For the moment, the ratios of net DTAs to bank equity in some countries are at similarly high levels as in Japan back in 2001-02 (Figure 15).
In particular, the ratio in Greece is higher than the peak level in Japan and that in Portugal is above Japan’s 2001 level. Although for Spain and Italy DTAs have a lower share in total bank equity, 30% is still big enough to pose significant risks in adverse scenarios, in our view." - source Nomura
Exactly! DTA amounts to us as "dubious" capital. As we have shown in our conversation "The Secondguesser" many Southern European banks are still capital impaired and their banks' capital basis are made up for a large part of Deferred Tax Assets (DTAs).
- The deterioration of the latest survey from French corporate treasurers warrants close monitoring
One particular important indicator we follow is the rise in Terms of Payment as reported by French corporate treasurers. The latest survey published on the 18th of May points to a deterioration in the Terms of Payments, which indicates that the improving trend since mid 2012 has turned decisively negative:
The monthly question asked to French Corporate Treasurers is as follows:
Do the delays in receiving payments from your clients tend to fall, remain stable or rise?
Delays in "Terms of Payment" as indicated in their May survey have reported an increase by corporate treasurers. Overall +18% of corporate treasurers reported an increase compared to the previous month (+22.8%), bringing it back to the level reached in October 2014 (17.9%). The record in 2008 was 40%.
Overall, according to the same monthly survey from the AFTE, large French corporate treasurers indicated that they are still facing an increase in delays in getting paid by their clients. It is therefore not a surprise to see that the overall cash position of French Corporate Treasurers which had been on an improving trend since 2011 has now turned more negative overall according to the survey:
The monthly question asked to French Corporate Treasurers is as follows:
"Is your overall cash position compared to last month falling, remains stable or rising?"
Whereas the balance for positive opinions was 17.9% in November 2014 and still at 6.3% in January 2015, February saw it dip to -5.2% and March's came at -13%, April at -0.5% but provisional May came at -9.5%.
We will restate what we mentioned back in our March 2015 conversation "Zugzwang":
"This warrants significant monitoring in the coming months we think from a "corporate monitoring health" perspective."
The French government policy is based on "hope" and their strategy is based on "wishful thinking". No matter what, we do not see unemployment falling with these deteriorating conditions.
Furthermore, in our March conversation, we indicated the following:
"While the international scene is watching with caution the rise of the French National Front, the political story, we think is the slow dislocation of the unity of the left."As we indicated in our conversation as well is that there was a large contingent of public servants supporting François Hollande representing 22% of the working population compared to 11% in Germany. The slow dislocation of the unity of the left is currently being tested given there was a significant demonstration of teachers in France this week. French teachers’ unions, which routinely protest any changes, complained about reforms relating to secondary education. France’s 840,000 teachers have traditionally been a strong base of support for President François Hollande, but the proposed reform has turned many against him and his ruling Socialists. Furthermore the growing rift has been increasing given the proposed reforms where pushed through a decree without consultation during the night, following the day of the demonstration. Given President François Hollande is already on the campaign trail for 2017, it will be interesting to see most of structural reforms requested by the IMF put on the sideline.
Given the on-going negative trend from the AFTE surveys, it will be interesting to both monitor the micro data from a corporate health perspective as well as the evolution of the political mood in France and the lack of progress in the unemployment front in the coming months.
- The liquidity in US credit shows clear signs of vacuum in unexpected places
We share the growing concerns of the lack of liquidity in the fixed income space. On numerous occasions we have indicated our uneasiness with the "yield hunt" and dwindling liquidity in the secondary space thanks to banks deleveraging as well as mounting regulatory pressure on market makers.
A good illustration for the hunt for yield has been happening in the high yielding space such as MLPs, REITS, dividend funds and High Yield as displayed in Bank of America Merrill Lynch's chart from their Thundering Word note from the 17th of May entitled "The Twilight Zone":
Investors are positioned heavily in high yield, high dividend yield and high PE strategies (Chart 15). The quest for high yield (relentless multi-year inflows to dividend funds, MLPs, REITS & HY bonds - $415bn inflows since Mar’09) remains the biggest Achilles’ Heel for positioning, in our view." - source Bank of America Merrill Lynch
What we find of interest from a "Twilight Zone" perspective is that when it comes to the Fixed Income space, the liquidity deterioration is not what it seems and has not been where one would have expected it to be. On this specific matter we read with interest Deutsche Bank's US Credit Strategy note from the 20th of May entitled "Signs of Liquidity Vacuum in Unexpected places":In this high stake poker game with investors, we hope the Fed will be able to play its "Optimal bluffing" strategy given its bloated balanced sheet and reduced liquidity in the Treasury market.
"Liquidity deterioration has not been uniform across fixed income
While liquidity has deteriorated in all parts of fixed income, the extent of such deterioration has not been uniform, and this represents another area where consensus view is often misguided, in our opinion. Figures 1 and 2 below present trading volumes in HY, IG, and Treasury markets, expressed in a percent of market size terms.
The scale here is showing us the proportion of each respective market that changes hands on a daily basis, measured as a trailing 12-month average value. In other words, HY traded 0.7% of its market size on an average day in the past year; IG traded 0.4%, and Treasuries traded 4.0%. The degree of deterioration in these metrics since their pre-crisis levels amounted to a 30% loss of trading depth in HY, 50% in IG, and 70% in Treasuries! We are doubtful that most investors realize the presence of this distribution in that the higher quality segments of the fixed income universe have in fact been impacted by liquidity withdrawal to a greater extent. Treasuries still maintain their position as the most liquid set of securities in the world; they are just not nearly as liquid as they used to be pre-crisis.
This last point is critical to properly understanding the current liquidity environment and its implications. While most investors perceive HY liquidity as being inherently poor, and drying up even more around turning points in the market, this in fact has been the normal state of affairs in our asset class. Few investors realize that IG has become a more illiquid portion of the credit universe, even though somewhat misleadingly a given IG cusip usually trades more deeply than a given HY one.Deutsche Bank Securities Inc. Page 3
These findings have significant implications as to how investors should be positioning themselves to take advantage of liquidity vacuum points that undoubtedly await us in the future. Instead of watching HY market for the signs of cracks, they should be spending more time monitoring higher quality portions of the market going all the way up to Treasuries. The experience of last year’s October 15 is very important in this respect in that it serves as a preview of what a liquidity vacuum experience is likely to feel like. The 10yr Treasury yield experienced a seven-sigma intraday move during that session, triggered by temporarily thin volume at some point, and exacerbated by dealers pulling a plug on their electronic trading systems on early signs of volatility. While that particular experience has not registered as much in credit, given its extremely short duration measured in minutes, it is reasonable to assume that it could have more pronounced implications in the future, if it lasts longer than that or repeats itself more frequently.
Furthermore, and we cannot overemphasize the importance of this point, most investors tend to think about the potential impact from reduced liquidity in the context of Fed’s raising of short-term rates and a resulting back up in longer-term Treasury yields. The key lesson from October 15 however is that Treasury yields gapped down, and not up, in seven sigma moves in a perfect example that illiquidity-driven volatility could happen on lower rates as well. We could not have come up with a better example than this to drive home our most important point: it is a point of debate how far and how fast the Fed is going to be able to raise short-term rates, given the prevailing weak macro environment and a potential for negative side-effects of higher volatility. But volatility itself could, and most likely will, materialize from their attempt of doing so, even if a lesson from this experience is that six-plus years of zero rates would make it incredibly difficult to raise rates in early stages of a liftoff without disrupting the market. The point is that failure to raise rates materially does not by itself protect us from higher volatility impacting the Treasury market first and IG/HY market next. In fact such a failure would probably mean that volatility was just too high for the market and the economy to be able to cope with it." - source Deutsche Bank
- Final note: Applying the US definition of U-6 under-employment shows Southern Europe is in the doldrums
Whereas many pundits are expecting a gradual recovery in Europe thanks to the ECB's QE support, we beg to differ and as we indicated previously, in our conversation "Chekhov's gun" back in November 2014:
Current European equation: QE + austerity = road to growth disillusion/social tensions, but ironically, still short-term road to heaven for financial assets (goldilocks period for credit)…before the inevitable longer-term violent social wake-up calls (populist parties access to power, rise of protectionism, the 30’s model…).
“Hopeful” equation: QE + fiscal boost/Investment push/reform mix = better odds of self-sustaining economic model / preservation of social cohesion. Less short-term fuel for financial assets, but a safer road longer-term?
Of course our "Hopeful" equation has a very low probability of success given the "whatever it takes" moment from our "Generous Gambler" aka Mario Draghi which has in some instance "postponed" for some, the urgent need for reforms, as indicated by the complete lack of structural reforms in France thanks to the budgetary benefits coming from lower interest charges in the French budget, once again based on phony growth outlook (+1% for 2015)
When it comes to the damages inflicted by the "credit crunch" in Europe, again as a final point, we would like to point out Nomura's interesting replication of the US BLS methodology to construct broader measures of unemployment in the euro area focusing on the so-called U-6 from their 19th of May 2015 Economic Insight note entitled "Euro area outlook more challenging than that of Japan in the 1990s":
"We also believe that the level of so-called labour under-utilisation, a concept which has recently attracted a large amount of attention in the US, is in the euro area at levels that no advanced economy has seen since the great depression. The rising share of nonregular contracts has been a feature of the Japanese (see Kuroda & Yamamoto 2013) and German (see Toshihiko, 2013) labour markets. This structural change is generally understood as having helped diminish the bargaining power of wage-setters and thus to the surprisingly low wage dynamics in those economies.
Measures of labour under-utilisation in the euro area are not readily available, which is probably the reason why there so little attention has been devoted to this topic.
We have replicated the US BLS methodology to construct broader measures of unemployment in the euro area focusing on the so-called U-6 definition of unemployment (a measure that includes people marginally attached to the labour force, part-time employment for economic reasons, and unemployed).The results shown in Figure 23 indicate that the euro area U-6 rate averaged slightly above 20% in 2013 (the latest year we have) compared with 13.6% in the US. The last reading for the US which is available on a monthly frequency was 10.9% in March 2015, down from its March 2010 cyclical peak of 17.1%.The picture across the region is extraordinarily varied, with the German U-6 already below 10% in 2013 and below its 2002-04 average and countries like Spain, Greece and Italy with U-6 levels at or above 30% and more than twice their 2002-04 averages." - source Nomura
"The greatest trick European politicians ever pulled was to convince the world that default risk didn't exist" - Macronomics.