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FACTDROP: Greece, Portugal and Spain really have benefitted most from the euro


Greece, Portugal and Spain really have benefitted most from the euro

Πηγή: FT
By Masa Serdarevic
August 17 2012

Has the single currency been good to you? It’s a question sure to inflame people across Europe, many of whom seem to believe they’ve suffered while others have made out like bandits.

The answer is pretty straightforward, according to Paul Donovan at UBS. If you look at the growth in household real disposable income between 2000 and 2010, those living in peripheral countries have benefited the most.

Donovan and his team at UBS have looked at eleven of the larger eurozone countries, breaking down income levels in deciles to get an insight into how income inequality has changed over the decade within countries and between countries.

To do this more accurately, they sought to identify income-specific inflation rates because headline figures only offered average rates, reflecting average spending patterns. The latter are not much use if you’re trying to understand income growth across income levels as a country’s high-spenders have a disproportionate impact on its inflation rate:

This matters because the last two decades have seen a growth in inflation inequality. Essentially, it is more expensive to be poor, because the goods and services purchased by lower income households have tended to rise in price by more than the goods and services purchased by higher income households. Lower income households tend to have a higher concentration of food, energy and housing in their consumer baskets. This is not a Euro-specific phenomenon, but something that has been observed across industrialised countries since the mid 1990s.

The team used data from Eurostat to re-weight the composition of headline CPI, to try to better reflect the spending patterns of the different income quintiles. Granularity, as they admit, is not fantastic, but it’s better than no granularity.

What Donovan and co found is that the lowest-income sections of the more “core” countries saw negative real disposable income growth, while those at the other end of the income scale saw incomes rise still further. In other words, in the core countries, the rich got richer, the poor got poorer.

But the “peripheral” countries tended to have higher overall levels of income growth, and all sections of their society enjoyed growing incomes. So, everyone got richer. (The authors stress that the data set ends in 2010, so the impact of the more recent austerity measures is excluded.)

For example, this is the Netherlands:

And this is Portugal:

Looking at Europe as a whole, where the lowest income decile is to the left of each country’s section, the pattern described above is roughly repeated.

Click to enlarge.

We’d note the particularly cruel decade suffered by Austrians, while Finland seems to have bucked all expected trends.

There’s no immediate explanation for that. But in the meantime, the authors sum up:

Germany, Ireland, most of Italy and the French middle class all experience a decline in their standards of living. In most of these countries, the highest income groups do relatively well.

What stand out are Greece, Portugal and Spain. These economies have benefited from increased standards of living under the Euro (at least, until 2010), as nominal incomes have overcome inflation pressures. There has also been a concentration on improving the lot of the lower income groups in these societies.

These are the sort of findings sure to play into the hands of the nationalist parties in the many of the core countries, brewing bitterness and resentment just as the troika-enforced austerity now assures the same in the periphery.

UBS, at least, don’t think that’s quite fair:

The countries that have experienced some moderation in their living standards are generally those that had the highest absolute disposable income levels in the first place. Someone occupying the bottom decile of French income distribution has twice the level of income of someone in the bottom decile of Greek income distribution in 2010.

The problem is that the debate works both ways, using exactly the same argument:

Why should one group of countries force another group of countries to accept lower living standards? This question could be asked by Germans of the Greeks (why should we see our taxes rise / disposable income fall to maintain your level of disposable income?). This question could be asked by the Greeks of the Germans (why should we see greater income inequality when we are already amongst the poorest in the Euro area, and suffer from a Germanocentric rather than a Helleno-centric monetary policy?). Both questions have a degree of validity.

While the authors point to the move toward greater income equality between nations during this period as a positive trend, they also cautiously argue that their findings suggest that the core countries should not be expected to continue financing the rise in peripheral living standards:

Looking at the growth of real incomes over the first few years of the Euro’sexistence, it is hard to argue against the idea that the peripheral countries shouldbe taking more pain now. Core countries have had to accept a decline in real living standards, and it seems unrealistic to expect them to finance an increase in living standards for others.


More on this in the usual place.

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