Sectoral Deleveraging in Europe and Its Economic Implications

Martin Gächter, Martin Geiger, Florentin Glötzl, Helene Schuberth

Publication: Chapter in book/Conference proceedingChapter in edited volume

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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
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
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
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.
Original languageEnglish
Title of host publicationFocus on European Economic Integration
Editors Oesterreichische Nationalbank
Place of PublicationWien
PublisherOesterreichische Nationalbank
Publication statusPublished - 2015

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