The Poverty Lie: How Europe's Crisis Countries Hide their Wealth

By SPIEGEL Staff

Photo Gallery: Who Should Cover Debts in the Euro Crisis? Photos
AP

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

In addition, interest rates are very low, because the ECB is flooding the euro zone with money to stabilize the system. People who save their money are currently getting the short end of the stick, as they are stealthily being dispossessed. On the other hand, those with enough money to invest in stocks and real estate are benefiting from the boom triggered by the flood of funds coming from the ECB. In other words, taxpayers and ordinary savers are paying for the euro rescue efforts, which are primarily benefiting the rich in Europe's most troubled economies. Their assets remain largely untouched, while the assets of their rescuers are melting away.

In the past, the affluent have only been expected to participate in the rescue twice. In the case of Greece, owners of government bonds had to relinquish a portion of their claims, and in the case of Cyprus, bank deposits of more than €100,000 were either partially or fully lost.

Both cases mark a turning point, indicating that government donors are no longer willing to bear all the risks without the private beneficiaries of the euro rescue paying part of the bill.

But this could be only the beginning. The current strategy is not only unfair, because it distributes the burden one-sidedly. It is also economically dangerous, because it could put too much of a burden on the donor countries. And if they began to falter, the monetary union would inevitably break apart.

Besides, the aid programs to date have only replaced old loans with new ones, so that the borrower countries will never shed their heavy debt burdens. On the contrary, the necessary austerity measures are stifling and shrinking the economy in Greece and other Southern European countries.

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

When politicians with the center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), perused the confusing figures at a breakfast meeting last Wednesday and turned to the finance minister with a questioning look in their eyes, Wolfgang Schäuble responded by shrugging his shoulders.

Schäuble was unwilling to offer a clear interpretation. He eventually commented that the figures were not as clear as they appeared, and there were no further questions.

Schäuble had reached his objective, given his fears that the material would be welcome ammunition for critics of the current rescue policy. Even the ECB, apparently feeling uneasy about its own numbers, came up with all kinds of footnotes to downplay the statistics' significance.

The ECB noted, for instance, that the average Cypriot household consists of three individuals, while the average German household has only two members. This is true, and yet a difference of 50 percent in household size cannot explain a difference of 200 percent in average wealth.

More convincing was the note that the differences in wealth were mainly attributable to property ownership habits in the various countries. Whereas just over 80 percent of households own their own homes in Spain (83 percent) and Slovenia (81.6), and even 90 percent in Slovakia, this is true of only 44 percent of Germans.

The following comparison shows what a significant role property ownership plays in wealth statistics: While the median wealth of a German household that owns its own house or condominium is €216,000, it's only €10,300 for renters.

It is also clear that homeowners in Spain and Cyprus are not nearly as wealthy as the ECB study suggests. The data for most EU countries are from 2010, while some of the information for Spain is even from 2008. In both countries, the value of many houses and condominiums has declined sharply. Spain alone has seen a decline of 36 percent in the meantime.

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1. Poor in mind as well as in substance
Inglenda2 04/17/2013
Most of Germany’s difficulties are home-made, especially those in the international field of political finances. Thanks to a whole series of governments, whose members receive such a high income that they have no realisation of normal people’s everyday problems, the value of money has become nothing more for them than a statistical entity. The same politicians who are so fond of explaining, to the less wealthy, how little is needed in order to lead a dignified life, show no restraint whatsoever, when helping themselves and others (for example banks and foreign governments), to taxpayers’ money. Germany could be the richest country in continental Europe, instead, not only the State is in debt, but also the majority of citizens are less wealthy than those of neighbouring countries. The main reason for this completely unnecessary situation is the futile attempt to buy the friendship of other nations. Friends –and this was clearly described in the bible story of the lost son – cannot be bought! Another is the military interference in countries which have never been a danger to Germany. The economical recovery (often called a wonder), which the country experienced following WW2, was largely due to the fact that no armed forces were needed for overseas duties. These, as can been seen in the case of Great Britain, are always an enormous strain for any national economy. To place prestige policies before the wellbeing of ones own electorate, may be quite common in European governments, but it is not only asinine, it is downright dishonest. Democratic governments, (by the people, through the people, for the people,), are there to represent the those who voted them into power, not for their own selfish aspirations. It would therefore seem, that the political parties in Germany have never really understood what true democracy means. Accordingly, the country is not only poor from an economic point of view, but also in its social and moral standing.
2. poverty in Europewho's the fool?
franzosemc 04/18/2013
Read W Münchau article http://www.ft.com/intl/cms/s/67f9afde-a2c5-11e2-bd45-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F67f9afde-a2c5-11e2-bd45-00144feabdc0.html&_i_referer=http%3A%2F%2Fmgptpt.wordpress.com%2F2013%2F04%2F14%2Fwolfgang-mnchau-the-riddle-of-europes-single-currency-with-many-values%2F#axzz2QTLk9vHT and Bloomberg http://www.bloomberg.com/news/2013-04-10/germans-are-poorest-in-the-euro-area-really-.html and http://blogs.lse.ac.uk/eurocrisispress/2013/04/07/selective-truths-and-spanish-riches-the-bundesbanks-study-on-household-wealth-2/
3. Euro-shafted
tnt_ynot 04/18/2013
The Prussians have been duped, deceived, outright conned and are Teutonically shocked to discover they are relatively poverty stricken. Germany’s decent, hardworking and proud citizenry have suddenly been awakened from a comforting illusion only to be confronted with a terrifying nightmare. The vaunted nation with its world champion export machine that filled fleets of freighters with sought after, expensive, industrial pearls labeled “Made in Germany” and for four long years has been bankrolling an ever growing number of down on their luck Club Med brethren now realize they have been robberly hoodwinked. They have, so-to-speak been Euro-shafted. http://euro-meltdown.blogspot.de/
4. A very unbalanced article
ZeLuiz 04/19/2013
This article focuses on accumulated wealth rather than on income. Southern Europeans have much smaller incomes than Germans - in Portugal, for instance, the minimum wage is 485,00 € a month and a qualified worker can earn as little as 600,00 €. If we tend to own more property than Germans, it is partly because we save more (we don't enjoy foreign holidays three times a year, for instance), because an almost inexistent renting market for habitation has forced us to buy (at the beginning of my married life, my whole salary went to our mortgage and we lived on my wife's salary), because a higher proportion of women have full-time jobs than in Germany and because so many of us emigrate and buy property when we came back (the second flat we bought was paid with money I earned in Switzerland). Portugal is the most unequal country in the Eurozone. I would be more than happy to see my wealthier compatriots pay their fair share of taxes, like I do. But our ideologically driven, oligarchy-friendly government doesn't even try - and has the full support of the European Commission, the IMF and the ECB in its choice of beggaring the hard-working, tax-paying citizens instead.
5.
nlefk83 04/19/2013
As a fellow Greek citizen, I wonder why Spiegel is indulging in all this filthy anti-southern country propaganda and where they get these numbers from. I am from a normal, middle-class family, fairly educated and currently working in one of UK's large organisations. This is just to put my social standing into context and assure you that within my social circle that consists of fairly well educated people as well, there may exist only a couple of people whose assets actually reach those levels. You can only imagine how the large, less well-off majority fairs. In fact, most young people in Greece, live in their parents house until they're 35 because they can't afford to live on their own or start their own family. Not to mention taking holidays abroad twice per year, as many German families do. I wonder how Spiegel can so shamelessly factor these numbers and exploit statistics to lie. So, what it effectively tells us that the average (not median, if you know what I mean) assets of the 600k Cypriot population is larger than the average of an almost 150-fold German population, not taking into account the effect of outliers or anything that scientifically makes sense. Even when we disregard this, Spiegel effectively says that Germany made German families poor to get an economic advantage and now everyone has to be poor because German citizens have acted like sheep. Finally - and this is the most important thing - they say nothing about how Germany is actually benefiting from the whole 'bailout' thing because it borrows money with low interest and it lends it to southern countries with high interest. This money is not donated and Germany is not a charitable organization, so stop whining and if you think it's in your advantage to not lend money on interest, don't. We don't even want to be on this European Union, thank you very much. You can sell your products elsewhere.
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