April 13, 2013

Household Wealth in Europe

The ECB has finally published the all-country report which gives us an indication of where household wealth is located and where in the future bailouts private wealth will be confiscated. The data is from 2009-2010 so especially in the PIIGS countries it could be overinflated after 3 years of austerity still is a powerful indicator of major unbalances in the Eurozone.
Italian median household wealth was indeed over three times larger than Germany’s. But that wasn’t the problem. The problem was Cyprus.
Cypriot households (CY), as measured by both their median and average wealth, were the second richest in the Eurozone. Median household wealth of €266,900 was over five times Germany’s median of €51,400. 
Average household wealth reached a phenomenal €670,900, 3.4 times Germany’s €195,200, and just shy of Luxembourg’s €710,100. Rarefied levels of wealth achievable only by small countries with huge and murky banking centres, or lots of oil. Few countries in the world are in that elite club.
And Germans based on median household wealth, were the poorest in the Eurozone.

It wasn’t that Cypriot households earned a lot of money—they earned the same as German households! They just knew how to hang on to it. At least until their bubble blew up.

By now, wealthier German households, those who own property and stocks, are significantly better off than they were in 2010, and they have since pulled up the average. Median household wealth, however—almost none of them own property or stocks—has certainly been left behind, again.
In the meanwhile in Cyprus real estate values, after a mind-boggling bubble, have been plunging for over two years; and billions in bank deposits have evaporated. 
Spanish household wealth has also been caught in a downward spiral of devastating unemployment and an exploding housing bubble—Spanish households lead the survey with a homeownership rate of 83%. In 2010, homeowners valued their homes at bubble prices. By now, much of the home equity Spaniards were clinging to has dissipated—with dramatic impact on household wealth.
Central bank sources told the FAZ that the Bundesbank and the ECB, to avoid stirring up a storm at an inconvenient time, kept this explosive wealth data secret until after the Cyprus bailout had been decided. But the data also explains the political motivation for the haircuts of account holders in Cypriot banks.
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