$16.3 Trillion Needed to Bail Out European Banks

From the Daily Telegraph (U.K.):

A secret 17-page paper discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday, also warned that government attempts to buy up or underwrite such assets could plunge the European Union into a deeper crisis.

National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors - particularly those who lend money to European governments - have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

“Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent - of asset relief could be very large both in absolute terms and relative to GDP in member states,” the EC document, seen by The Daily Telegraph, cautioned. “

"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems.”

To put this into perspective, the amount needed to bail out these banks, according the the article, is equivalent to 44% of the entire balance sheet value of the banks in Europe. Put another way, this amount ($16.3 trillion) is more than the entire GDP of the United States last year. If this is true, we are rapidly beginning to see an environment in which banks that were "too big to fail", when seen in aggregate, are quickly becoming "too big to rescue" -- even by governments!

I didn't post the information here (my internet connection has been poor), but earlier this week, a trade association of Russia's banks approached Europe's banks to demand renegotiation of repayment terms for $400 billion in loans that they couldn't repay. This, on top of all the toxic assets that European banks have created in non-performing loans to emerging market countries, is rapidly becoming a crisis of such gargantuan proportions that finding a solution may prove intractable, and perhaps impossible.

Read the entire article here.