Poor German, Rich Italian


The headlines about Germans being poorer than the Italians and the Spanish and other Europeans make for amusing reading. Those headlines were based on ECB (European Central Bank) data, no less. Which rules out the data source as being wrong.

But, let’s face it, the headline is so obviously and completely wrong. Who in their right mind thinks of Germany as being the poor cousin of Europe? So what exactly is wrong here?

The one word answer: statistics. As in that famous line about statistics and damned lies. As in it’s as much about what is revealed as what is hidden.

Now for the longer answer.

Turns out most people in Spain and Italy own homes whereas most Germans don’t. So when you calculate the net wealth of an individual, you add the home value in Spain and Italy but not in Germany. Oh by the way, the ECB data was based on 2008 home values, and, unless you lived in a cave, you’d know the values of those homes today would be much less. Much, much less.

Additionally, a home in Milan is far more expensive than Munich. Or to put it differently, the purchasing power of the Euro is different in different countries. As the Financial Times snidely commented, there’s a German Euro and there’s an Italian Euro. That’s what happens when you have monetary union without a political one, said FT. But FT is a Brit paper, you say. True, but on this point, they’re right.

Now since everyone knows that the Germans are richer and yet, individual Germans don’t have the money, where’s all that German money hiding? With the government and corporations. Of course, the government would be footing health insurance and pension bills for the people, but that doesn’t get counted as an individual’s wealth. So it matters how you do the accounting.

Now the above info is complicated to spread around, least of all for the German politician who has to justify why they should be bailing out irresponsible (and now it seems, richer) countries. But if the Germans don’t bail out the Euro trash, who will? Even more worrying, can any country be confident of coming out unscathed if Spain and Italy come crashing down? After all, we live in an entangled, globalized world...

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