A friend of mine passed me a Eurostat publication entitled The European and Euro-zone Financial Structure - Rapid Changes in Recent Years", in the series 'Statistics in Focus', written by Messrs Massaro and Laakari.
This publication is very interesting. It was written earlier this year and is based on statistics up to the year 2000. It looks at the financial assets of households and the assets and liabilities of both financial and non-financial corporations.
The study does not include figures from Ireland, Luxembourg and Greece since these countries are under derogation until 2005.
In 2000, the total portfolio of financial assets in the EU stood at €19,000 billion and there were 13,000 billion in the euro-zone. In each case, this was more than double the Gross Domestic Product (GDP) of the respective area.
The country with the highest assets to GDP was Belgium. It had assets equal to three times its GDP (314 per cent). The average for the EU was 226 per cent. The lowest was Norway, with financial assets at 90 per cent of GDP.
The country with the highest household debt to GDP was Denmark with financial liabilities at 98 per cent of GDP. Denmark has also one of the lowest assets to GDP, at 147 per cent. Most household debt goes to finance houses. High debt to GDP and low assets to GDP makes a country more susceptible to economic downturns.
Belgium, the country with the highest amount of assets relative to GDP, also had one of the lowest households' debt level, at 45 per cent of GDP. Italy's households had the lowest level of financial liabilities, at 30 per cent.
The study then analyses households' financial assets between different instruments: deposits, bonds, shares and insurance reserves. It does this for 1996 and 2000.
During the period, there were rapid changes in the composition of households' assets.
For the whole EU (except, of course, the three countries with the derogation which were excluded) there was a massive flow out of deposits and bonds and into shares, with insurance reserves remaining nearly constant.
This was very marked in Italy. The percentage of assets which Italians held in deposits fell by 13 per cent between 1996 and 2000. Their holdings of bonds fell by 12 per cent.
The Italians, in 1996, were the largest bondholders. They held nearly one-third of all their assets in bonds.
The study states that between 1997 and 2000, Italians invested €387 billion in shares. The holdings of shares went up by 24 per cent so that Italians, in 2000, held 43 per cent of their assets in shares.
The highest share ownership in 2000 was by Finland, at 65 per cent of household's assets.
There were only two countries which reduced the proportion of assets held in shares. The first was Portugal where assets held as deposits and shares fell but bonds and, especially, insurance increased. This is partly explained by the fact that in 1996 the Portuguese held only 11 per cent in insurance, compared to an EU average of 29 per cent. There was therefore a redistribution of assets, perhaps in response to fiscal regulations.
In Denmark, the proportion of wealth held in deposits, bonds and shares fell but there was an increase in insurance holdings. This country, however, already held insurance reserves at 39 per cent in 1996, and boosted this up to 44 per cent in 2000, the second highest after the Netherlands, where households keep 56 per cent of their assets in insurance reserves. In the UK, they hold 50 per cent of assets in insurance.
When we come to financial corporations, for the whole EU, between 1996 and 2000, deposits as liabilities fell in importance and there was an increase in shares.
Between 1996 and 2000, non-financial corporations reduced their reliance on loans and issued more shares to finance their operations.
Finally, the study shows that for the EU as a whole there was more internationalisation with an increasing proportion of liabilities incurred going towards the acquisition of assets based outside the country concerned.
Of course, since 2000, the year for which full statistics were available for this study, share values have fallen substantially and this would have had a substantial effect on the value of assets held.
("Market View" will return in September.)