ECB: Crisis knocked 10% off household wealth amid evidence of higher inequality
A collapse in house prices during the eurozone’s sovereign debt crisis knocked household wealth amid suggestions of rising inequality, according to new figures from the European Central Bank.
It its latest survey of 84,000 households across the single currency area, the ECB found average net wealth in the eurozone fell 10 per cent from 2010 to 2014 compared to the pre-crisis years, while inequality between the richest and poorest also edged up on some measures.
Amid concerns that growing inequality has emboldened populist forces in Europe and US, the ECB said the overall distribution of wealth in the eurozone was “skewed” towards the richest.
The survey found that the median household – which separates the richer half of the population from the poorer half – owned net wealth worth €104,100 over the four-year period. This compares with €496,000 for the 90th percentile (the household that divides the poorest 90 per cent of the population from the richest 10 per cent).
Declining asset prices – led by property crashes in the likes of Spain and Ireland but spread across the continent from 2010 to 2012 – imposed the biggest hit to wealth in the period. Euro-area citizens are particularly exposed to changes in house prices, as over 80 per cent of household wealth is in “real assets” such as property.
Evidence of higher inequality following the financial crisis has been mixed. Global central banks have however been criticised for stimulus measures that have driven up the price of stocks and bonds through their quantitative easing measures.
One widely-cited measure of wealth inequality, the Gini coefficient, crept up to 68.5 per cent from 68 per cent in the eurozone, “within the margin of measurement error”said the ECB. It also found that the share of wealth concentrated among the top 5 per cent of rich households increased to 37.8 per cent from 37.2 per cent.
According to the Gini measure, a value of 100 reflects maximum inequality, or one household owning all wealth.
The poorest households also suffered the biggest average hit to their wealth. For example the 25th percentile suffered a 14.7 per cent hit while the 75th percentile’s net wealth was 10.2 per cent lower.
ECB president Mario Draghi has voiced his concerns about rising popular dissatisfaction with the eurozone, calling on EU integration to protect the most vulnerable.
“I do not think there will be significant progress in terms of opening up markets and competition if Europe does not listen to the demands of those left behind by a society built on the pursuit of wealth and power”, Mr Draghi said in September.