Everyone is talking about the Eurozone boom. But a look at solvency shows that many nations are increasingly living off their crumbling substance. Above all, the hope France is causing great concern to economists.
Die Euro-zone celebrates again even. The 19 members of the currency union will experience the strongest growth for ten years, at the same time, unemployment has fallen to its lowest level since the financial crisis. The economic data this week will continue to fuel the mood. Times are over, as the Old Continent was a black mark on the economic map. The euro zone is back, was the unanimous opinion also at the World Economic Forum in Davos.
But a recent study by the foundation-financed Freiburg think tank CEP disturbs the euphoria. The euro zone as a whole would look healthy and stable. However, this is a fallacy. « The creditworthiness of euro countries continues to develop very differently, » write CEP authors Lüder Gerken, Matthias Kullas and Till Brombach. There is still a lack of economic convergence between the euro countries, which is indispensable for reducing tensions in the euro area.
Although the creditworthiness of two-thirds of the euro countries is steadily increasing. But in the other Euro nations, it is steadily decreasing or already being lost sustainably. « The euro zone is not yet stable, » is the conclusion of the experts.
Creditworthiness is appraised
The most important argument of the Freiburg economists is the so-called CEP default index, which the expert group calculates once a year for each member of the euro zone.
This measures how the solvency of individual economies develops. It is about how great the potential of the euro-zone economies is to repay borrowed loans . The experts look at the loans taken out by the state, companies and consumers and compare them with the investments.
If the debt rises faster than the investment or if the investment even declines, a country lives from the substance, and thus the credit rating decreases. Based on this methodology, six euro area countries, namely Greece, Italy, Latvia, Portugal, Slovenia and Cyprus, show a solid erosion of creditworthiness. In two euro countries, the decrease has even accelerated.
But not only the usual suspects can be found in the CEP default index with a red light. For the first time since 2014, France’s creditworthiness has also fallen again. Here the credit traffic light jumped on yellow-red.
After all, the solvency of Germany, Estonia, Lithuania, Luxembourg, the Netherlands, Austria and Slovakia has risen, and in Finland and Belgium the credit rating has largely remained the same.
The results of the Freiburg think tank CEP stand in stark contrast to the general perception in the financial markets and in politics. Only recently was the rating of Greece upgraded by the leading agency Standard & Poor’s. France, on the other hand, is celebrated as the new star of the Eurozone because of its reform-minded President Emmanuel Macron. Many experts predict the golden age of the second largest economy of the monetary union even a golden decade .
However, in the first half of 2017, government, household and business borrowing accounted for three percent of economic output. They were thus slightly above the resulting capacity-increasing investment of 2.9 percent. The loans were therefore not used sustainably. « France has not used any, albeit very small, portion of its net capital imports for capacity-increasing investment, » write the CEP authors.
French have been on the pump since 2005
The French economy has been dependent on foreign loans on balance since 2005, and the trend is rising. In the first half of 2017 alone, net capital requirements rose from 2.5% to 3% of GDP, nearly reaching its all-time high of 3.1% in 2012 and 2014. « Due to its political and economic importance, the development of the French credit is having a massive impact on the euro area as a whole « , write the CEP authors.
For the euro area , it is essential that the French creditworthiness does not continue to decline, but rises again. A prerequisite for this is a reduction in net borrowing abroad, especially for consumption, and accompanied by a decline in the high consumption rate. In fact, the consumption rate of 97 percent is well above the average for the eurozone.
In the 19 Member States , consumers spend just under 93% of their disposable income on consumption. However, that does not mean that the French tighten their belts, according to the CEP authors. « The most socially acceptable way to do this is to increase the available aggregate income, for example by reducing unemployment. »