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Prepare to have your gast flabbered, because Wolfgang Munchau of the Financial Times has a flabbergasting fact for you:

  • “A European Central Bank survey shows that households in northern Europe have a much lower net wealth than those in southern Europe. Average German net assets per household are just under €200,000, while they are €300,000 in Spain and €670,000 in Cyprus. No, this not a typo.”

What can possibly explain this counter-intuitive result? It surely can’t be that the average German is less wealthy that the average Spaniard or Cypriot, or can it? Munchau goes into the various ins and outs of the statistic, but even after taking into account the fact that Germans are less likely to own their own homes, the numbers still stubbornly indicate that the people doing the bailing out in the Eurozone are, on paper, poorer than those getting bailed-out.

Munchau’s explanation for this mystery is as follows: 

  • “Since the start of the eurozone, wages and consumer prices have remained broadly constant in Germany. In southern Europe, the general level of wages and prices has increased year in, year out. Over the period, this persistent inflation gap has led to a large discrepancy in asset prices. This is why an apartment in Milan costs much more than one in Munich, the city with the highest property prices in Germany. A German euro buys more real estate in Munich than an Italian euro buys in Milan.”

But, hang on, what can he possibly mean by “a German euro” and “an Italian euro”. The whole point of the Eurozone is that there are just euros (or rather Euros – here at the Deep End we believe that currency names are proper nouns and should always be capitalised).

If a Euro in Italy can buy more property in Munich than it can in Milan, then why doesn’t it move north of the Alps and make its owner richer than he or she is already? Clearly, there must be various formal and informal barriers to the movement of capital, good and services. Wolfgang Muchau certainly thinks so:

  • “Looking back to 1999, my own experience was that restaurants and taxis in Berlin were cheaper than restaurants or taxis in Brussels or Paris, but the differences have now become extreme. Curiously, the price gap also affects tradable goods: European cross-border retail markets are not working efficiently.
  • “This leaves me to conclude that the unit of account is not really the same across the eurozone – that Spain and Germany have a different euro.”

But is it really just down to language barriers, regulatory hurdles and the like? Perhaps the reason why southern Euros stay where they are is precisely because of the inflation of asset prices in countries like Spain and Italy? After all, most people don’t regard rising property values as inflation, but as an investment opportunity.

Viewed from one angle, the debt-fuelled inflation of these asset bubbles is what has destabilised the Eurozone, but viewed from another angle it is the potential for speculative gain that has prevented Euro-denominated capital in southern Europe from fleeing north – thus bringing the whole edifice crashing down. 

We may therefore all sleep soundly in our beds, secure in the knowledge that the Eurozone rests on a firm foundation of irony.

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