Sectoral Deleveraging in Europe and Its Economic Implications

Martin Gächter, Martin Geiger (), Florentin Glötzl () and Helene Schuberth ()
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Martin Geiger: University of Innsbruck
Florentin Glötzl: Vienna University of Economics and Business
Helene Schuberth: Oesterreichische Nationalbank, http://www.oenb.at

Focus on European Economic Integration, 2015, issue 1, 8-23

Abstract: We examine net lending/net borrowing and the underlying debt dynamics at the sectoral level in the European Union. Saving and investment patterns indicate that there have been considerable deleveraging efforts since the start of the global financial crisis, particularly in the nonfinancial corporate and household sectors. In many EU countries, however, this decline in credit transactions has not yet led to a significant reduction of sectoral debt-to-GDP ratios. Subdued output growth and low or even negative inflation rates have undermined the deleveraging process and increased real debt burdens in a number of European economies. Since these are often the countries that had experienced strong credit booms prior to the crisis, rebalancing needs are likely to persist and may be a significant drag on the recovery in the near future. Furthermore, most of the ongoing rebalancing – both in terms of debt levels and current account deficits – is based on a sharp decline in investment rather than an increase in saving, which might lead to lower potential growth in the future. Recent developments may even jeopardize the catching-up process of peripheral euro area countries and non-euro area EU Member States in Central, Eastern and Southeastern Europe.

Keywords: balance sheet recession; financial accelerator; credit crunch; investment (search for similar items in EconPapers)
JEL-codes: E22 E24 E44 G21 G31 (search for similar items in EconPapers)
Date: 2015
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