Germans Are Poorest in the Euro Area. Really?

Megan Greene is the chief economist at Maverick Intelligence, which advises governments and companies on political, policy and macroeconomic developments. She was previously was director of European economic research at Roubini Global Economics.
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With a title like "The Eurosystem Household Finance and Consumption Survey," the European Central Bank's latest piece in its Statistics Paper Series doesn't sound like a page-turner. It has received a lot of attention, though, because of its conclusion that the poorest households in the euro area are German.

These findings are likely to incite a lot of resentment among German taxpayers, who will no doubt feel all the more strongly that they shouldn't have to bailout other countries where households are even wealthier than theirs. So the study deserves some scrutiny.

The ECB's researchers aimed to measure household wealth across the euro area and rank countries accordingly (they looked at 15 of the 17 euro area members, leaving out Ireland and Estonia). By looking at a variety of indicators such as home ownership, the ECB believes this study could help identify potential bubbles in euro area countries before those bubbles burst.

According to the report, Cypriot households are among the wealthiest in currency zone, with a median net wealth that's 267,000 euros per household, second only to Luxembourg. German households recorded a median net wealth of only 51,400 euros per household, the lowest in the region.

There are a lot of problems with this point of view, best summarized in a blogthat was written after the Bundesbank published part of the ECB report last month (having contributed to it).

To begin with, it is wrong to think of the bailout programs as German households bailing out wealthier households in the periphery. Irish taxpayers, for example, have paid a huge price to ensure, among other things, that German banks didn't have to take any losses for their risky investments in Ireland. As a result, the German government didn't have to use taxpayer money to recapitalize banks -- so if anything, Irish households are bailing out German ones.

It is also important to look at the data the ECB used for the study. First, the most recent data used is from 2010 -- back when only Greece was in a bailout and the crisis had not yet spread to Spain or Italy. A lot has changed since then. Second, the results are skewed somewhat by the inclusion of home ownership -- the rateof owner occupancy is, for example, about half as high in Germany as in Spain. At the same time, the report excludes public and occupational pensions, which are relatively high in Germany and certainly a source of wealth.

These arguments are likely to be lost on the man on the street in Berlin. With German elections coming up in September, Chancellor Angela Merkel may feel obliged to cater to those who are upset by the study and tow a harder line on the peripheral bailouts. We saw how this worked with Cyprus, where coverage in the German media of alleged Russian money laundering on the island drove Merkel to take a tougher position on the bailout.

The (unfortunate) bottom line to draw from the ECB's study is that if any of the peripheral countries are hoping for some leniency on hitting fiscal targets, their chances of winning concessions just got even smaller -- at least until after the German elections.

(Megan Greeneis a Bloomberg View columnist and chief economist at the consulting firm Maverick Intelligence.Followher on Twitter.)

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To contact the author on this story:
Megan Greene at mgreene40@bloomberg.net