In Europe, Consumption Gap Widens

The euro-zone’s fiscal crisis has widened the gap between household consumption in those countries pursuing austerity programs and those that aren’t, according to figures from the European Union’s official statistics agency.

Within the currency area, households in Greece, Ireland, Portugal and Spain suffered relative declines in consumption of goods and services in 2011, while those in Germany, Austria and Finland saw their relative consumption increase, the data from Eurostat showed.


The figures present a measure of how much real austerity citizens of the various EU nations had suffered up until the end of 2011, with governments in those nations that saw relative consumption falling most sharply having cut spending and hiked taxes more dramatically than others.

Eurostat Wednesday published estimates for gross domestic product per capita adjusted to eliminate price differences between countries, which is the standard measure of household income. They showed that Luxembourg was the richest country in the 27-nation bloc, followed by the Netherlands and Austria.

Eurostat also released figures for Actual Individual Consumption, which give a more accurate measure of the volume of goods and services consumed. The GDP-per-capita records only what households can spend themselves, while AIC adds in goods and services provided by the state, such as health and education.

Using the AIC measure, household consumption in Greece slumped in 2011, to 94% of the EU average of €18,000 euros ($22,847) from 101% in 2010. Spanish household consumption fell to 94% from 95%, while Portugal’s household consumption dropped to 82% from 84%, and Ireland’s declined to 100% from 102%.

By contrast, German household consumption rose to 119% from 117%, while Austria’s increased to 117% from 116% and Finland’s to 112% from 111%.

Greece, Ireland and Portugal have had to seek bailouts from the EU and the International Monetary Fund after investors became unwilling to buy their government bonds. Under those programs, they have had to cut government spending and raise taxes. Spain has also embarked on an austerity program in an effort to avoid seeking help from the EU and IMF, although it has sought up to €100 billion ($126.9 billion) in loans for its troubled banks.

The changes in relative household consumption are part of the rebalancing of the euro zone’s economy. Many of the nations now embarked upon austerity had consumed more than they produced in the years running up to the crisis, running big current-account deficits and borrowing heavily from abroad.

Eurostat’s figures also pointed to a recovery in two Baltic States that launched tough austerity programs in the wake of the 2008 financial crisis, which they have largely completed.

The figures show that household consumption in Lithuania rose to 66% of the average from 61% in 2010, while in Latvia it rose to 56% from 53%. Poland, which has weathered the financial crisis and the ensuing economic slowdown in Europe with relatively little pain, saw its household consumption increase to 70% of the average from 66%.

Outside the euro zone, the U.K. saw its household consumption fall to 118% of the average from 121% in 2010. It too has embarked on an austerity program.


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