European North-South wealth disparity is widening rather than narrowing a German study finds.
Elementary you might say.
But there is a difference between a suspicion, impression, a political argument, and fact-driven research. What I find hilarious is that this is German research by a German asset managing company.
This is precisely the opposite of what had been envisaged by the ECB in the early 2000s. Contrary to expectations when the single monetary union was being launched, northerners get richer and southern Europeans poorer. The study claims to be one of the very few relying on wealth price statistics and compares ten European member states: Germany, Netherlands, Austria, Finland, Belgium, France, Greece, Italy, Spain, and Portugal.
The research project was conducted by the Flossbach von Storch Research Institute in Cologne and is linked to a German asset management company. The main conclusion is that countries like Austria, Germany and the Netherlands benefit from the monetary union while Portugal, Italy, Greece, and Spain see their assets depreciate.
In 2015 alone, wealth in Germany and Austria increased by 7%, year on year; meanwhile, Greek, Italian, and Spanish assets in 2015 depreciated by an average of 4%.
Since 2010, wealth appreciation in northern Europe has surged to the tune of 14,7%; in the south, they have depreciated by 14%. The worst case is Greece, with assets losing 34,1% of their value; Austrians have seen their assets surge by 25,2% doing even better than Germany’s 19,6%.
The steepest fall during this period was recorded in Greece (with a drop of 34.1 per cent), the steepest increase in Austria (with a rise of 25.2 per cent). With an increase of 19.6 per cent, Germany recorded the second-largest increase in wealth among the countries studied. Germany drives the trend of wealth disparity because of the size of the economy.
Increased asset valuation increases the amount of leverage, that is, loans that be taken out against the value of such assets. More credit boosts investment and economic growth. By the same token, asset depreciation has a knock-on effect on the banking system of the southern periphery, linked to mortgages, commercial property, and corporate loans. The asset value trajectory was moving towards the opposite trajectory until 2006.
The suggests the European Monetary Union works as a mechanism of economic divergence, with a common interest and exchange rates being too low for northern Europe, so that their wealth and economy overheats; in the south exchange rates are too high, wealth depreciates, and the economy is pushed into depression the study argues.
Drawing a parallel with the European Monetary System of the authors suggest that unless policy prerogatives prevail, the cleavage will lead to the collapse of the EMU.
The study is based on three asset classes: real estate, business wealth, and durable consumer goods, including collectors’ items. For the aggregation of individual asset classes, the study uses weights based on household wealth surveys of the European Central Bank and the Organization for Economic Cooperation and Development.
