ECONOMY

Greeks spend heavily but keep borrowing

The rise in interest rates from what were historic lows poses a threat to Greek households, which have been borrowing heavily to finance investments (especially in housing), consumer and other needs, such as studies. According to a study published yesterday by Eurostat, the EU’s statistics agency, and the European Central Bank, Greeks are still borrowing at an increasing pace compared to other Europeans, saving less and spending almost exactly as much as their European counterparts in the original 15-member EU (that is, excluding the newcomers, most of them from poorer Eastern Europe) despite a far lower average income. Specifically, household indebtedness increased 26 to 30 percent in Greece during the first quarter of 2006, depending on the type of loan, while the eurozone average was 9.8 percent. Greeks save about 15 percent of their annual income, compared to 18-20 percent in Europe and 25 percent in the United States. The average per capita consumption in Greece is 13,700 purchasing power parity units, the average of the original 15 EU members. In terms of GDP, consumer spending equals 70.4 percent in Greece, versus 56.4 percent in the EU-15 countries. In 2004, the total wealth of Greek households was equal to 145 percent of GDP from 191 percent in 2000. During the same period, their indebtedness almost doubled, to 43 percent of GDP, from 22.7 percent. Low purchasing power in Greece Greek incomes do not stretch as far as those in other European Union member states when it comes to buying goods and paying for services, according to Eurostat data. The Greek cost of living index stood at 88 percent of the EU average in 2005, when the country’s gross domestic product (GDP) per capita was at 82 percent of the EU average, the data show. In 10 of the original 15 EU member states and in nine of the 12 eurozone members, price levels are either equal or lower than income levels in terms of the averages, which means that purchasing power parities (PPPs) are higher. Among the original EU 15, four other countries had low PPPs apart from Greece: Portugal and the three Scandinavian member states – Finland, Sweden and Denmark – where taxation is especially high. Price and income level are identical in terms of their relation to the EU average in France and Italy (109 percent and 103 percent respectively). Greece ranks 15th among the 25 in terms of general price level and 15th in terms of GDP per capita. In terms of hotel and catering prices, Greece remains below the EU average, at 91 percent, but relatively expensive in relation to competing countries (such as EU candidate Turkey, with 66 percent). Turkey’s GDP per capita is 31 percent of the EU average.