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April 9, 2013 7:31 pm
Cyprus yielded only to rich Luxembourg among euro-area countries in household wealth rankings as recently as 2010, while Germans were the statistical paupers in the bloc, according to data released by the European Central Bank on Tuesday.
The study, the first of its kind, is bound to fan indignation in Germany and other northern members of the currency union who see themselves as being the paymasters for heavily indebted southern countries, like Cyprus, Greece, Spain and Portugal, that have all sought international bailouts.
The ECB study’s calculation of median net wealth in Cyprus stood at €267,000 per household, compared to just €51,000 for Germany, which came lowest in the survey, the fieldwork for which was carried out in 2010.
Low home ownership in Germany – less than half of all households own their main residence while more than 80 per cent do so in Spain and 77 per cent in Cyprus – played a large role in accounting for the disparity. Other factors include differences in household size, house prices, levels of indebtedness and the number of households that owned businesses.
The survey of 62,000 households was also not able to take into account public and occupational pensions, provision of which varies considerably and which are valuable but hard for individuals to put a price on when they are interviewed.
A day after the death of Margaret Thatcher, the UK prime minister who tried to create a “shareholder democracy” by encouraging the British to buy up shares in the privatisation of state-owned enterprises, the data also revealed how small the pool is of households who actually invest in shares or bonds.
While 96 per cent of eurozone households held money on deposit in a bank and 60 per cent owned their house, just 5-12 per cent held bonds, shares or shares in mutual funds. Moreover those investing in financial assets were overwhelmingly in the higher wealth brackets.
“Participation in the stock market is therefore clearly below what is suggested by economic theory, namely that all households with positive net wealth should hold at least some publicly traded shares, for diversification reasons and because of the higher expected return on stocks compared to other investments,” the study’s authors wrote.
While the net wealth finding is potentially misleading, the data on share ownership underlines the ECB’s reason for coordinating the study, which is conducted with national statistics offices and central banks.
It hopes that the granular data will help both it and academic researchers spot trouble, such as asset bubbles or pockets of extreme indebtedness, before they become systemic problems. The harmonised data allow it to compare eurozone countries against each other and against the US, where the Federal Reserve uses comparable methodology.
“The ongoing and long-lasting economic crisis has made it more evident than ever that large structural imbalances may remain hidden behind macroeconomic aggregates,” the study says. “On numerous occasions the early detection of such imbalances requires access to highly granular or even micro-level information.”
It plans to conduct the household finance and consumption survey on a three-year cycle. The Bundesbank, one of the contributing national central banks, published a portion of the data last month, showing the disparity in household wealth between German and Italian and Spanish households. Ireland and Estonia were not included in the first survey.
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