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Higher Debt, Higher Growth: A short history of debt accumulation in Europe

  • November 2015
  • 20 pages
  • MarketLine
Report ID: 3662192

Summary

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Introduction

In the 1980s, Europeans became hooked on debt to afford their lifestyle. Bank loans, a range of mortgages and credit cards became a necessity.The debt fueled economy produced one of the most spectacular economic crashes ever seen. However, policy makers still believe that more consumer credit is the only solution to the crisis, even though it generates instability over future debt repayment.

Features and benefits

* Uses statistical analysis to predict the impact of expanded consumer credit on the manufacturing sector in Europe.
* Understand how Europeans have accumulated debt and the impact this has had on the region's economies.
* Analyzes the potential impact quantitative easing may have on the output levels of the euro area economy, including within the manufacturing industry.
* Compares Europe's debt accumulation to that of Japan and the US

Highlights

The outstanding credit to households increased from US$4tn in 1995 to more than US$11tn by the end of the 2000s. In the UK alone, which initially imported the “financial deregulation” idea from the United States, household debt is running at US$2.4tn in 2015. This represents an increase of more than 200% since the middle of the 1990s.
The profitability of European banks increased markedly and banking turned into a risky activity compared to the conservative methods adopted in the 1970s. Household debt has generated a permanent stream of cash from consumers to the banking system based on the acquisition of mortgages and consumer credit to purchase durable and non-durable goods.

Your key questions answered

* Should developed economies become highly dependent on consumer credit to expand?
* Is the manufacturing sector benefiting from Quantitative Easing (QE)?

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