The Eurogroup recalls Tonio Kröger, Thomas Mann´s early novella. The son of a Hanseatic
merchant and a "Southern" mother, Tonio Kröger inherited qualities
from both sides of his family. But he experienced conflicting sentiments,
feeling both superior to the Bourgeois due to his artistic talents and envious
of their vitality. This conflict continues to imprint on the Eurogroup, with
finance ministers rooting from Northern Hanse and Eastern Habsburg preaching
austerity, and their counterparts from the (Latin) South vulnerable to financial
crises and weaker public finances.
Importantly, the Hanse-Habsburg countries are
barring the mutualisation of debt (Eurobonds), for a variety of reasons such as
the fear of free rider problems (via asymmetric transfers paid from
Northern taxes) or fear of their own taxpayer constituencies. Brexit adds another element of caution
that EU cohesion may not only be unwound from the South through rising anti-EU
(or anti-Euro) sentiment, but equally from lack of voters´ support from the
North (and the East). The endemic deficiency of the EU to this day is that a solid
European public sphere hardly exists[1].
The proliferation of EU-friendly think tanks cannot make up for this
shortcoming.
Late March 2020, EU leaders faced a proposal
co-signed by nine different eurozone governments: the “coronabond”,
a new type of public debt instrument to be backed by all the 19 (!) member
states of the currency union as they come together to combat the escalating
COVID-19 crisis. However, the eurobond motion came up against the eurozone’s
“frugal four” – Germany, the Netherlands, Austria and Finland – who avoided
their inclusion in the emergency rescue package to make available more than
half a trillion euros to cushion the impact of the coronavirus pandemic across
Europe. Italy and Spain, badly hit by the virus, would have benefitted most –
not least via an immediate drop in the interest burden on their public debts.
Table: Mean net wealth per adult (USD), wealth
inequality and taxation
in selected
Eurozone countries
Countries
|
2019
Median Wealth/Adult, k
|
2019
Mean Wealth/Adult, k
|
Wealth
Inequality (Gini)
|
Inheritance
tax, % GDP
|
“Frugal”
|
||||
Germany
|
35.3
|
216.7
|
81.6
|
0.2
|
Netherlands
|
31.1
|
279.1
|
90.2
|
0.3
|
“Vulnerable”
|
||||
Italy
|
91.9
|
234.1
|
66.9
|
0.0
|
Spain
|
95.4
|
207.5
|
69.4
|
0.2
|
Europe
|
24.7
|
154.0
|
82.4
|
n.a.
|
Sources: Credit Suisse (2019), Global Wealth Databook; Ifo Institute (2018), “Wealth
and Inheritance Taxation: An Overview and Country Comparison”,
Ifo DICE Report, 02/2018.
Notes: Wealth is net household
wealth composed of financial (liquid assets; equities; other, including funded
pension and life insurance assets) plus non-financial (housing, land and small
business) assets minus debt. Inheritance
tax refers to revenues from taxes on inheritance, bequest and gifts.
Sure, to wither the human
and economic coronavirus desaster, solidarity is called for across EU
nations. But it is easy to cast the recurring Euro conflicts in terms of the
selfish rich against he vulnerable poor. The table shows that the reality is
more complicated. It is based on the Credit
Suisse Global Wealth Report, which has been the leading reference on global
household wealth since more than a decade. Wealth is defined as net household
wealth, composed of financial (retail or institutional holdings of cash, deposits,
stocks and funded pension or insurance assets) plus non-financial (housing,
land and small business) assets minus debt (for more details, consult Davies,
Lluberas and Shorrocks (2016)[2]).
Unfunded pension claims, for example, do not enter the Credit Suisse Global Wealth Report.
Obviously, the
evidence shown here is not intended to feed a normative judgement on the pros
and cons of Eurobonds or Coronabonds. I personally take an agnostic view on
them, even though the recent PR glibber in favour of Coronabonds does awake my
iconoclast instincts. I rather want to simply derive two points from the table:
· First, the terms ´rich´ and ´poor´
should refer to wealth stocks, not to
annual income flows. The frugal
leaders Germany and Netherlands have very low median wealth/adult (real estate
and financial assets), in fact roughly a
third(!) of the median wealth/adult level recorded for Italy or Spain. Consequently,
common talk about the ´rich´ North and the ´´poor´ South is misleading.
· Second, wealth inequality is very
high in the frugal leaders Netherlands and Germany, indicated by the stark
divergence of their median and mean wealth/adult level. Household wealth seems
distributed more equally in vulnerable Italy and Spain. This is confirmed by
the displayed Gini coefficients (Corrado Gini´s measure ranges from 0 to
100%, with 0 representing perfect equality and 100 representing perfect
inequality). As the mean wealth/adult of the “frugals” roughly equals that of
Italy and Spain, common talk about the ´rich´ North or the ´poor´ South is
still misleading even when mean wealth is compared.
[1] H.M. Enzensberger (2011), Brussels the Gentle Monster - or the
Disenfranchisement of Europe, Seagull Books.
[2] Davies, J., R. Lluberas and A.
Shorrocks (2016), “Estimating the level and
distribution of global wealth, 2000-14”, WIDER
Working Paper, No. 2016/3, UNU-Wider, Helsinki.
[3] A. Speciale and C. Vasarri (2016), “How
to Stay Rich in Europe: Inherit Money for 700 Years”, Bloomberg, 26.
August. Special thanks to special Twitter mate Stephan Ewald aka “I bims. Der #MAGA#Ottakringer”
for pointing me to this article.