ECB indicates south Europeans can endure more austerity

European Consumer Summit 2013, (18/03/2013). (EC Audiovisual Services).

According to a European Central Bank report which was published yesterday, the average household in south European countries like Cyprus, Greece, Spain and Italy possess more net wealth than their peers in the north (net wealth is defined as the difference between total assets and total liabilities). The obvious conclusion is that they can endure more austerity and shock therapy measures. For example the study finds that the mean net wealth of a Cypriot household is €670,900, of a Spanish one €291,400, of an Italian € 275,200, in comparison to only €195,200 in Germany, in the Netherlands € 170,200 and in Finland just €161,500. The authors of the report note that, “The data for Cyprus appear not to be comparable with those for other euro area countries in a number of dimensions and should therefore be interpreted with caution. However, once the above mentioned factors are accounted for, the net wealth figures for Cyprus appear less of an outlier”.

Wealthy Southerners

Cyprus however according to this study is not the only southern Eurozone country to support wealthier households than Germany or other north European countries. The median net household wealth in Greece appears to be €101,900, in Spain € 182,700, in Italy €173,500, in Cyprus 266,900 while the comparable figure for the German household is only €51,400, for Austrian €76,400 and for a Finnish household €85,800. At this point it must be noted that median is this value on the ladder which leaves one half of total values above and the other half below it. The mean value is the arithmetic mean of all measurements.

Can endure more

The writers introduce their own work like that: This report summarises key stylised facts from the Eurosystem Household Finance and Consumption Survey (HFCS) about household assets and liabilities, income, and indicators of consumption and credit constraints. A key distinguishing feature of the HFCS is that it provides individual household data collected in a harmonised way in 15 euro area countries for a sample of more than 62,000 households. The reference year for most country surveys is 2010. The survey focuses principally on household wealth and its components. Household – level data on balance sheets can provide insights into a number of areas relevant for policy. For instance, they allow studying how various households groups (e.g., the indebted, low-wealth, credit-constrained, or unemployed) respond to shocks depending on the structure of their balance sheets, as well as identifying the groups of households that may be subject to increased debt burden and financial vulnerability, to detect threats to households’ financial soundness and to model the response of such households to interest rate shocks”.

In other words those ECB writers right from the beginning, draw the attention of policy makers to the fact that the Southerners can stand well the applied shock therapy their economies are under, because the households down there possess a large cushion of family wealth. Since those surveys have been conducted with 2010 data, that is one or two years after the crisis erupted, policy makers can conclude that Greeks, Cypriots, Spaniards and why not Irish, Italians and Portuguese can endure more austerity measures, because they are sitting comfortably on large family wealth buffers.

The average Eurozone household

However the report contains interesting information about the financial situation of the euro area households. Key results of the survey are:

*60.1% of households in the euro area own their main residence – 40.7% outright and 19.4% with a mortgage. The median value of the main residence for the owners is €180,300.

*23.1% of households own other real estate property; the median value of other real estate property is €103,400.

*11.1% own a business in which at least one member of the household is employed; the median value of self-employment businesses is €30,000.

*75.7% own vehicles; the median value of vehicles is €7,000.

*96.4% of households own deposits (sight or saving accounts), while voluntary private pensions/whole life insurance is held by 33.0% of households; all other financial assets are owned by less than 15% of households.

*Ownership of financial assets other than deposits depends strongly on income; in the highest income quintile (a quintile is 20% of total), 26.5% of households hold mutual funds, while 24.4% hold publicly traded shares.

*43.7% of households in the euro area have (some type of) debt; 23.1% have mortgage debt, while 29.3% have non-mortgage debt. Among households that have debt, the median value of mortgage debt (€68,400) substantially exceeds the median value of non-mortgage debt (€5,000).

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