Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Inequality in the euro zone

Posted by hkarner - 29. Oktober 2016

Date: 27-10-2016
Source: The Economist

The gap between poor and rich regions in Europe is widening

Austerity is partly to blame

inequality-euTHE beautiful but rubbish-strewn streets of Catania, Sicily’s second-biggest city, are a world away from swanky Trento, in the country’s richer north. About a quarter of Sicilians are “severely materially deprived”—meaning that they cannot afford things like a car, or to heat their home sufficiently—compared with just 5% in Trento. Italy is not unique. In many places, the divide within countries appears to be getting worse.

According to an analysis by The Economist, the gap between richer and poorer regions of euro-zone countries has increased since the financial crisis. Our measure of regional inequality looks at the average income per head of a country’s poorest region, expressed as a percentage of the income of that country’s richest part. The weighted average for 12 countries shows that regional inequality was declining in the years leading up to the financial crisis of 2007-08, but has increased since then (see chart).

The poorest area in Slovakia, the euro zone’s most geographically unequal economy, now has an income per person of just 28% of the richest, a slight fall from before the crisis. In Calabria, Italy’s poorest region, income per person as a share of the country’s best-off part, the province of Bolzano, was 45% in 2007 but is only 40% now. Elsewhere poor regions of the euro zone have seen income falling in both relative and absolute terms.

An exception is Germany: in its once-communist east, excluding Berlin, GDP per person reached 67% of that in former West Germany last year. (Most of the catch-up took place in the early 1990s, but continues more slowly.)

Deindustrialisation is partly to blame. Most of the euro zone’s 19 members have fewer manufacturing jobs than in 2008. Manufacturing employment is high in many of Europe’s poorer countries, but they have lost international competitiveness in part because of an overvalued euro. Tight public spending also plays a role. Since 2008 the number of civil servants in the euro zone has fallen by about 6%. This has often hurt needy regions most. Cuts in welfare benefits also hit harder. A paper by Luca Agnello, Giorgio Fazio and Ricardo Sousa, three economists, found that austerity led to higher regional inequality in 13 European countries between 1980 and 2008.

This suggests that the problem will continue: public funds will be tight for years to come, while weak public spending on education and infrastructure will crimp future growth. Even if the euro zone starts to grow strongly again, the geographical scars will be plain to see.

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