Inequality in southern Europe remains high and above the pre-crisis level

A inequality increased, above all, in southern European countries during the sovereign debt crisis, between 2010 and 2013, partly due to the decline in real estate prices, and remains high above the pre-crisis level.

In addition, inequality in the most affected countries remained stable after 2014.

This is the conclusion of an analysis by ECB economists Danilo Bianco, Jiri Slacalek and Oreste Tristani, published on Wednesday on a blog of the institution.

The sovereign debt crisis, which occurred between 2010 and 2013, caused a sharp increase in inequality in the euro area, a phenomenon “especially intense and persistent in the countries most severely affected by the crisis,” the ECB’s economists assessed.

Since then, inequality in the euro area has returned to the levels observed before the sovereign debt crisis. However, it remains high and is well above pre-crisis levels in countries which have suffered the greatest impact.

The economists of the ECB reached this conclusion on the basis of data from 90,000 interviews with households representing the population of 22 countries, a survey conducted every three years.

The fall in real estate prices was the main factor in increasing inequality.

At the beginning of 2010, the market began to express concerns about the sustainability of Greece's public debt and, later, Ireland, Portugal and, later, Spain, Cyprus and Italy.

The income of sovereign bonds has risen significantly in these countries.

This scenario led to a recession in the euro area, which included a decline in real estate prices.

“The decline in real estate prices was the most important factor in increasing inequality in net wealth,” economists highlighted.

This affected the families who had been in debt to buy their house harder, since the value of their properties decreased, but their debt remained.

Net financial reserves also decreased due to the crisis, especially among households located at the bottom of the wealth distribution.

On the other hand, the share price, held by the wealthiest families, recovered quite quickly.

The recession has reached the whole euro area, but “it has made itself feel particularly intense in the countries most affected by the sovereign debt crisis”, Cyprus, Spain, Greece, Ireland, Italy and Portugal, where real estate prices and incomes have declined the largest, according to economists.

The poorest families could not get their financial reserves back together.

For this reason, Cyprus, Spain, Greece, Ireland, Italy and Portugal have seen a greater increase in inequality between 2010 and 2014, compared with other euro area countries, due to the inability of poorer families to quickly reset their reserves.

In these countries, the rate of own households fell, especially among younger families.

Later, “house prices gradually recovered, which should have contributed to reducing inequality,” they added.

However, as the rate of own housing was lower, fewer families benefited from the valuation of real estate after the crisis.

For this reason, inequality in the most affected countries remained stable after 2014.

Between 2014 and 2017, inequality in the euro area returned to the pre-crisis level thanks to economic recovery.

During the covid-19 pandemic in 2020, it remained stable due to government support for vulnerable families.

Between 2021 and 2023, the acceleration of inflation changed wealth by raising the cost of living, which forced families with lower incomes to resort to their savings, since they usually allocate a larger portion of their income to first-need goods, such as energy, which was the most expensive item.

Inflation has reduced the real value of bank deposits. Thus, with the same amount of money, it became possible to acquire less goods and services.