Tracking Consumers Through Europe’s Debt Crisis

Although signs of recovery have spread across much of the Western world, Europe is still in turmoil. Together, Greece, the EU5 (France, Germany, Italy, Spain, and the U.K.), and Switzerland saw little growth in 2011. Germany led the pack with just 3 percent growth in GDP, while the rest ranged from a low of –7 percent in Greece to a high of just 1.9 percent in Switzerland. Meanwhile, Greece, Italy, and Spain remain in a recession, and other countries are teetering on the precipice. High government debt and budget deficits have also sparked market fears of public default. To lower debt levels and appease the markets, some governments are attempting to reduce their budget deficits by trimming expenses, which is putting additional pressure on national and regional economies. Yet these politically charged austerity plans have done little to curb the massive debt burden.

Many consumers in the EU5 and Greece are struggling with the twin realities of rising job insecurity and high household debt. Employment throughout Europe has failed to return to prerecession levels, and the total number of people out of work is expected to increase yet again in 2012. Greece and Spain have been especially hard hit, with more than one in five people unemployed. And despite job protections, France’s unemployment rate has increased steadily since 2007 to nearly 10 percent in 2012. Household debt continues to pile up across Europe, with every country except Switzerland tallying a gross bill of greater than 60 percent of GDP.

Germany, where unemployment has fallen steadily despite the recession and debt crisis, presents a relatively positive picture within Europe. By holding wages steady, rather than raising them, the country has improved its competitiveness without increasing unemployment. That has enabled it to protect its export markets (so far) without sacrificing internal consumption. Germans have also enjoyed fairly stable housing prices. In fact, Germany is the only country to show real housing-price growth in 2009 and 2010.

Acknowledgments

The authors wish to acknowledge the contributions of their colleagues François Aubry, Lamberto Biscarini, Charmian Caines, Carlos Costa, Emmanuel Huet, Sharon Marcil, Stefan Rasch, and Bettina Schönenberger.

They also thank the members of the central team: Noor Abdel-Samed, Emilio Gonzalez, Jean Li, Sarah Milton, and Matthew Smith.