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One reason why US growth will be faster than European growth


Asked his most significant numbers of 2012, Robert Peston, BBC Business Editor chose the numbers 80:20. Here is his reasoning:

“My statistic of the year was given to me by Jean Claude Trichet, the former president of the European Central Bank. He told me about the 80:20 ratio for Europe and the 20:80 ratio for the United States. What does that mean? It means that in Europe, roughly speaking, banks provide 80% of the finance needed by businesses and households. Whereas in the States banks provide only 20% of the finance required by businesses and households.”

This goes a long way to explaining the continuing crisis in the eurozone. When European banks are in trouble, the finance for businesses is in short supply. Since only 20 percent of the equivalent funding in the US comes from banks, the problem is far less acute. This means a shortage of capital in Europe and a recession more difficult to climb out of, but nothing like the same problem in the States. The result will see much faster growth in the US than in Europe, and international investors must be looking to a swifter and more certain recovery there.


2 Responses

  1. Is that a bow tie? Clearly you’re smart so perhaps you could help me with a question. Yesterday I got round to listening to the More or Less podcast that had Robert on it and since then I’ve been trying figure out who provides the 80% of financing for business and households? Is it credit unions for households and company bonds and private investment for companies?

    I appreciate the 80/20 20/80 ratios may be somewhat approximate but it’s a stark difference.

  2. Anton,

    I think US companies rely more on debt markets and venture capital (bonds and private investment). I also think that households in the US think generally have more revolving credit, namely credit card debt, with many prominent non-bank issuers of cards.

    And yes, it is a bow-tie; I wear them for smart occasions such as public or media appearances. My friends want me to post a YouTube video about my method of tying them, which is simpler and more logical than the conventional method….

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