One big clue to the size of the oncoming debt deflation is the central bank's ongoing policy shift away from bail-outs -- where taxpayers shoulder the losses at a failed bank -- and toward so-called bail-ins, where the losses are dumped onto bondholders.
Now, in Italy, authorities are saying "no new bailouts" for a national airline.
Read this excerpt from the June European Financial Forecast:
Another new wrinkle in the deflation story formed last month, when Italian national airline Alitalia, filed for bankruptcy "amid signs that the government, and the Italian people, were fed up from providing life support." (NYT, 5/2/17) Officials say there will be no new bailout of the airline, and, so far, no rival carriers have expressed interest in buying the company. Alitalia is actually the latest in a string of failed national air carriers, as the chart shows. Before Italy, no fewer than six of Europe's national airlines -- in Austria, Greece, Spain, Hungary, Czech Republic and Portugal -- had been sold, taken over, or outright liquidated since the Euro Stoxx 50 index dropped 50% during the financial crisis.
Last month's bankruptcy for Alitalia represents the airline's third since the financial crisis. The government "swooped in with taxpayer money" (NYT, 5/2/17) in 2008, and it did so again six years later in 2013, keeping the airline aloft with a €500 million rescue package. The airline has turned an annual profit only a handful of times in its 68-year history, costing taxpayers about €7 billion over the past decade. The government's refusal to save the airline this time around betrays a broader psychological shift now underway in the culture at large.