Are poor Germans supporting rich Spaniards?
- A recent European Central Bank survey shows large differences in average net assets per household across the euro area from a median figure of €51,400 in Germany to €397,800 in Luxembourg.
- The prime real asset held by European households is residential real estate and a large part of the cross-country differences can be explained by differences in national home ownership rates and in the dynamics of house prices.
- The wealth disparities between Germany, and the financially strained countries, imply a ‘poorer’ north is supporting a relatively richer south threatening the euro’s stability.
European Central Bank (ECB) has published a survey of household wealth across
the euro area which provides further evidence of the enormous economic
imbalances existing across the currency area. The survey of 15 euro area
countries based on a sample of more than 62,000 households indicates that
German households had the lowest level of median net wealth at €51,400 among
the countries surveyed. The survey, which had a reference year of 2010, also
shows that the median levels of net household net worth were much higher in
financially troubled countries such as Greece at €101,900 and Spain at
€182,700. In Portugal, the median household net assets stood at €75,200 while
the median figure for Cyprus was €266,900. These inter-country comparisons are
shown in Chart 1.
wealth and income figures are affected strongly by the distribution of income.
However, comparing countries using mean household wealth still shows that
the citizens of some of the countries receiving bailout funds are richer than
the average German. Mean net household wealth in Germany at €195,200 is 32%
greater than Greece, 28% more than Portugal, but is only 67% of the level of
mean net wealth of households in Spain. The mean figure for household wealth in
Cyprus was estimated by the ECB at €670,900 more than three times the German
level and just below that of Luxembourg, the richest country in the European
Union, at €710,100.
1: Median and Mean Net Household Wealth - 15 Eurozone Members
are a number of reasons why these differences shown in the table may be
exaggerated by institutional and dynamic factors, but the conclusion remains on
the basis of these estimates that the average German household has far less private
wealth than many other euro area countries including those whose public sector
indebtedness threatens the stability of the euro project. The size of the imbalances
indicate the nature of the economic and political strains that German citizens
will have to bear if the country and its citizens continue to be a major pillar
of support for the single currency.
ECB survey defines household net wealth as the sum of private real and
financial assets net of total liabilities. Real assets accounted for 85% of the
total gross value of euro area household wealth and the most prevalent real
asset held was their main residence accounting for 60.8% of the total.
survey ignores public pension provision, but the ECB data showing the reported
relative poverty of German households is not compensated for by a glut of
collective pension assets. Estimates made by Aviva show that the Germany has a
total pension fund provision deficit of €458.8 billion equivalent to €5,657 per
capita compared with comparable figures of €3,597 per person in Spain, €3,695
in France €1,587 in Italy.
in net wealth across Europe depend obviously on income since assets are built
up from savings over time and there should be a relationship between net assets
However, despite their higher income levels households in Germany, Finland and
the Netherlands appear to have amassed far fewer net assets than would be
expected given GDP per capita levels, while households in Spain are richer than
would be expected. The ECB survey notes that differences in family size and
the age composition of the population in each country also impact on the
observed cross-country variation in net wealth, but the main causes of the
wealth differences across Europe is related participation in the housing market
and the relative value of residential assets.
the ECB survey cross-country differences in median wealth levels fall for
property owning households were far less if the sample is split into homeowners
and non-homeowners compared to all households.
Therefore, a significant part of the dispersion in median net wealth across
countries is due to differences in the rate of homeownership. Chart 2 shows
that Germany, where the provision of public housing is important, has the lowest
rate of home ownership at 44.2% compared with a cross-country average rate of
factor is the dynamics of national real estate markets and the value of a
household’s main residence. The survey was a cross-section study with a
reference year of 2010, but for Spain data collected refers to 2008 and to 2009
for Greece. Some adjustment would be necessary for differences in asset price
deflation between countries as a result of these discrepancies, but the fact
that conditions of boom and bust in real estate markets have not been perfectly
correlated across the European countries surveyed means that even the use of a
single reference year would catch different countries at varying points of their
property price cycles. For example, from the end of December 2001 to December
2008, Spanish residential property prices had increased by 103%, while the
value of German homes had fallen by 3.8% from the same start date to the end of
More recent estimates of net household wealth based on the dynamics of property
markets would need to take account of the fact that German prices have risen by
10% since the ECB survey’s reference year while Spanish property has declined
2: Home ownership rates across Europe
are a number of other data issues that go some way to explain the observed differences
in net wealth between countries. A serious problem with the ECB survey is that
the data is inherently subjective with households reporting self-assessed
prices so that net wealth ‘is determined by the assets and liabilities that it
Household estimates of residential property values are likely to be biased
during periods of rapid price appreciation or decline.
problem noted by the ECB is that ‘the data have been aggregated considering
neither price adjustments for the differences in reference years across
countries, nor purchasing-power parity adjustments across countries.’Adjusting wealth
estimates for purchasing power parity implies that the unit of account used to
make comparisons, the euro, is not the same across countries. Relative price
differences means the purchasing power of the euro zone could vary
significantly depending on the structure of relative prices. Some evidence of
these disparities in the price of a similar basket of consumer goods is given
by the data provided by the World Price Index which has been calculated by
World Economics for over two years..
The most recent figures for April 2013 suggest that the price level in France
is 24% higher than in Germany meaning that a euro of wealth in Germany is worth
relatively more in purchasing power.
wealth survey suffers from a number of data problems including reference year
differences, reporting subjectivity and the neglect of purchasing power
variations in the euro between countries, but adjusting for these will only go some
way in explaining the observed cross-country differences in wealth across the
Eurozone highlighted by the ECB survey. German households appear from the survey to be less wealthy than
their southern European counterparts. Over time changes in asset and product
prices may eliminate such imbalances, but in the short-term the disparities can
only put more pressure on the euro and on the maintenance of the perception of
an equitable distribution of the financial burden required to support it.
European Central Bank (2013),
The Eurosystem Household Finance and Consumption Survey Results from the First
wave, Statistics Paper Series, No 2, April: http://www.ecb.int/pub/pdf/other/ecbsp2en.pdf?34f66ea231daaaf2517e07299171f6c4
The estimate of the
"pensions gap" is based on looking at the additional annual amount
which citizens retiring between 2011 and 2051 would need to save - in addition
to their existing anticipated state and private pension income - in order to
ensure an adequate lifestyle in retirement. "Adequate" is defined as
an average retirement income of 70% of pre-retirement income (a level used by
the Organisation for Economic Co-operation and Development (OECD). See http://www.aviva.com/europe-pensions-gap/pensions-gap-europe.html