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Home Publications Blogs Beat the Press Wall Street Journal Gets Taken for a Ride on Europe Wealth Survey

Wall Street Journal Gets Taken for a Ride on Europe Wealth Survey

Wednesday, 10 April 2013 16:51

The European Central Bank (ECB) was a bit late with their April Fools' joke, but they did come up a whopper. It produced a study of household wealth in the euro zone in 2009 and 2010 that came up with the startling news that:

“German households are among the poorest—on paper, at least—in the euro zone.”

The WSJ piece goes on to tell readers:

“Nevertheless, the report offers a reminder that citizens in some of the countries hardest-hit by Europe's debt crisis aren't as bad off as many believe...

“The median, or midpoint, of German households had just over €50,000 in wealth, the lowest in the euro zone. The median in Greece, was twice that, at €102,000, and five times as high as in Cyprus at nearly €270,000.”

Figured out the problem yet? Well 2009 and 2010 are the key part of the story. Most middle income people in most euro zone countries have most of their wealth in housing. The years 2009 and 2010 just pick up part of the decline in house prices. In Spain house prices declined by more than 15 percent in the last year.

This is huge in terms of people’s wealth. Imagine you had a home with 30 percent equity and the price just fell by 15 percent. Half of your equity just disappeared. If the price fell by 30 percent, as it has in many areas over this period, you would have lost all your wealth. Reporting on household wealth near the peak of the bubble is just silly. Presumably the folks at the ECB know this even if the reporters and editors at the WSJ don’t.

Comments (6)Add Comment
Real gap may be even wider
written by Jennifer, April 10, 2013 5:15
The funny thing about the WSJ is that they give appropriate details-like pointing out the timing-but just plow through to their talking points anyway. They also point out that because of requirements of a large down payment and less favorible deductions Germans have less homeownership compared to Greece and Spain. So I would expect German wealth is much more liquid.
written by AlanInAz, April 10, 2013 6:01
The study showed that Germany had the lowest median wealth by a wide margin of ALL the countries in the EU. Even if the report is flawed it seems reasonable to expect that this report will strengthen the resolve of Germans to insist on austerity throughout the EU.
The survey will only affect euro zone politics if they are as ignorant as WSJ editors
written by Dean, April 10, 2013 6:05
The survey did not include the value of defined benefit pensions. This is an important source of wealth for a typical German household, less so for other countries.
written by somethingblue, April 10, 2013 7:04
The Wall Street Journal doesn't get taken on any rides it didn't stand in line and buy a ticket for.
Reuters account similar to WSJ
written by AlanInAz, April 10, 2013 7:36
"The data, which was mainly collected in 2010, showed that the perception of rich northern European countries helping their poor southern cousins was not accurate, and that solid public finances are no indication of high personal wealth."

The above is a quote from the Reuters article on the ECB study that was linked in Tyler Cowen's blog without critical comment. The article is no better than the WSJ account in my view. I expect the German language media to be similar in tone. Was the release of such a report by the ECB a cynical ploy to bolster austerity supporters in Germany?
written by Chris Engel, April 11, 2013 1:22
Even if you account for a decline in home prices....

The wealth disparity data really is revealing about the current political mechanics at play in the Eurozone.

And Dean makes a point about defined benefit pensions as well.

I'm curious if there's a more holistic analysis out there that accounts for 1) the adjustment in housing/stock markets, 2) pensions, other assets.

TO really put things in perspective.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.