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Financial Balance Sheets of Households

Between 1999 and 2008, the evolution of the households’ financial balance sheets mean that we can gather the Eurozone countries into four groups:

  • • Group 1: Austria, Luxembourg, and Slovenia.
  • • Group 2: Estonia, Ireland, Latvia Lithuania, Malta, and Portugal.
  • • Group 3: Germany.
  • • Group 6: Belgium, Cyprus, Finland, France, Greece, Italy, the Netherlands, Slovakia, and Spain.

During these 10 years net financial assets of households grew in 4 countries, declining in the other 9. On its part, the size of financial assets increased in 9 countries (declining in 10), and, lastly, the size of financial liabilities increased in 18 economies, with Germany being the only country where the households reduced their liabilities.

If we characterize the financialization process by the changes in the size of the financial balance sheets, then 9 countries (those included in groups 1 and 2) registered a financialization process before the onset of the Great Recession; only in Germany can we talk of the existence of a definancialization process.

We want to emphasize the similarities and differences existing between the sector of non-financial corporations and the households sector. In both cases the process of financialization came with deterioration in the net financial assets that affected 11 countries in the case of non-financial corporations and 15 countries in the case of households). However, while in the case of the non-financial corporations there was an increase in the size of financial assets (12 countries) and of financial liabilities (15 countries), in the case of households the size of financial assets only increased in 9 countries and the size of financial liabilities increased in 18 countries.

After the onset of the financial and economic crisis in 2008, there has been an abrupt change in the grouping of the Eurozone countries, with the result that in the period 2008 to 2014, there have been only two groups of countries:

• Group 1: Belgium, Cyprus, Finland, France, Greece, Italy, Luxembourg,

Malta, Netherlands, Slovenia, and Slovakia.

• Group 5: Austria Estonia, Germany, Ireland, Latvia, Lithuania,

Portugal, and Spain.

This change implies that, although in all Eurozone countries there was an improvement in the households’ net financial assets, we can detect the existence oftwo different strategies in terms ofthe improvement ofthe households’ financial positions. In the countries included in group 1, this improvement is the result of an increase in the size of financial assets that is larger than the increase of financial liabilities; however, in the countries included in group 5, the improved financial position of households is explained by the combined increase of financial assets and the fall of the size of financial liabilities.

Therefore, although in all the Eurozone countries there has been an increase in the size of households’ financial assets, there is a deleveraging process of households only in 8 countries while the size of their financial liabilities has grown in 11 countries.

However, the existence of only two groups of countries in relation to the strategy to improve the households’ financial position does not imply that within each group the changes recorded in the size of financial liabilities and assets are similar; rather, the opposite is the case. Thus, regarding the countries that are included in group 1, the minimum and maximum values of the changes recorded in the components of the households’ financial balance sheets ranged in the case of net financial assets from 8.4 percent of GDP in Slovakia to 74.2 percent of GDP in Netherlands; in the case of financial assets, from 12.9 percent of GDP in Slovenia to 79 percent of GDP in Cyprus; and, finally, in the case of financial liabilities from 3.6 percent of GDP in Netherlands to 26 percent of GDP in Cyprus.

In the case of the countries included in group 5, these values oscillate for net financial assets between 20 percent of GDP in Austria and Lithuania, and 58 percent of GDP in Ireland; for financial assets between 14.3 percent of GDP in Estonia and 38.9 percent of GDP in Spain; and, finally, in the case of financial liabilities, between -1.4 percent of GDP in Austria and -24.3 percent of GDP in Ireland.

We wish to underline again the differences existing between the adjustment process that has taken place during the Great Recession of the financial balance sheets in the cases of households and non-financial corporations. In the case of the latter, in most countries (14 countries) there has been a deterioration in the financial position of non-financial corporations. However, in the case of households, the financial position of this group improves in all 19 euro economies. Moreover, only in 2 countries (Italy and Lithuania) has there been a decline in the size of the financial liabilities of non-financial corporations. On the contrary, in the case of households the decline in the size of their financial liabilities has occurred in 8 countries.

 
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