The Poverty Lie – Part 1: How Europe’s Crisis Countries Hide their Wealth

Published on Spiegel Online International, by Spiegel Staff, April 17, 2013 (Photo Gallery – see also: ECB study shows German households poorer than Cyprus’).

How fair is the effort to save the euro if the people living in the countries that receive aid are wealthier than the citizens of donor countries like Germany? A debate over a redistribution of the burdens is long overdue.

The images we see from the capitals of Europe’s crisis-ridden countries are confusing to say the least. In the Cypriot capital Nicosia, for example, thousands protested against the levy on bank deposits, carrying images of Hitler and anti-Merkel signs, one of which read: “Merkel, your Nazi money is bloodier than any laundered money.”  

German Chancellor Angela Merkel was greeted by a similar scene when she visited Athens in October 2012. An older man with a carefully trimmed moustache and pressed trousers stood in Syntagma Square. The words on the sign he was carrying sharply contrasted with his amiable appearance: “Get out of our country, bitch.”

Despite these abuses, the protesters and all of Merkel’s other critics in Rome, Madrid, Nicosia and Athens agree on one thing: Germany should pay for the euro bailout, as much as possible and certainly more than it has paid so far.

They argue that Germany is a rich country that has benefited more than all others from the introduction of the euro, and that it has flooded other European countries with its exports, becoming more prosperous at their expense.

Germans Own Less than Those Asking for Money:

But there is also a second image of Germany, one that’s based on numbers, not emotions. The figures were obtained by the European Central Bank (ECB) and released last week. This image depicts a country whose households own less on average than those that are asking for its money.

In this ranking of assets, Cyprus is in second place Europe-wide, while Germany ranks much lower, even lower than two other crisis-ridden countries, Spain and Italy.

And this Cyprus, with its affluent households, is now supposed to receive €10 billion ($13.1 billion) from the European Stability Mechanism (ESM), the Euro Group’s permanent bailout fund, and the International Monetary Fund (IMF), at least according to the decisions reached after dramatic negotiations, which the German parliament, the Bundestag, is expected to approve this week. But a new question is arising: Why exactly are we doing this? Isn’t Cyprus rich enough to help itself?

In light of the new ECB study, a new discussion of the Euro Group’s bailout strategy is indeed necessary. So far taxpayers have born the risks of this strategy, by guaranteeing all loans the ESM has paid out to needy countries. Greece, Ireland, Portugal and Spain are already part of this group, and now Cyprus has been added to the mix.

Germany is already guaranteeing about €100 billion in loans. If even more countries request aid and can then no longer serve as donors, the amount of money guaranteed by the Germans could rise to €509 billion, according to an estimate by the German Taxpayers’ Association. This figure doesn’t even include the latent risks in the balance sheet of the European Central Bank (ECB).

One-Sided Burdens: … //

… Crisis Countries Should Seize Assets:

It would be more sensible — and fairer — for the crisis-ridden countries to exercise their own power to reduce their debts, namely by reaching for the assets of their citizens more than they have so far. As the most recent ECB study shows, there is certainly enough money available to do this.

The numbers are potentially explosive. For instance, the average German household has assets of €195,000, almost €100,000 less than the average Spanish household. The average net wealth of households in Cyprus is €671,000, more than three times the German value. Italian and French households are also significantly wealthier than their German counterparts.

The differences are even more pronounced when it comes to median net wealth, which is the level that the lower half of the population just reaches and the upper half exceeds. On this measure, Germany, at €51,400, is actually in last place in the euro zone. The corresponding value for Cyprus is five times as high. Median net wealth is even higher in crisis-rattled Portugal than in Germany.

The conclusions of the ECB study had hardly been published before various efforts to relativize and whitewash the figures began. The results were apparently embarrassing to the ECB itself, but also to the German government.

ECB Downplays Report’s Significance: … //

… (full text – The article you are reading originally appeared in German in issue 16/2013 (April 15, 2013) of DER SPIEGEL – die Armutslüge: wie Europas Krisenländer ihre Vermögen verstecken).

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Graphics by Europ. Central Bank, on Photo-Gallery of Spiegel Online International:

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