Stefan Bauchowitz 80x108Jose Javier Olivas  80x108Recent weeks have seen the German Central Bank and the European Central Bank release studies that have suggested that Germans have less wealth than Southern Europeans. Stefan Bauchowitz and José Javier Olivas argue that differences between the data used and the composition of German and Southern European households make this comparison largely meaningless. They write that the studies have been framed in such a way to move public discourse to be against bail outs for countries in Southern Europe.

At the height of the Cyprus bailout crisis, the German Central Bank, the Bundesbank, has introduced into the public discourse the notion that Southern Europeans are richer than Germans. This claim is based on a study on household wealth and a rather questionable comparison across countries. While the Bundesbank has noted the limitations of this comparison in the fine print, it is hard to believe that this is not a Bundesbank attempt to sway public opinion against further bailouts. Although the initial response in the press was rather restrained, the debate was reignited after the European Central Bank (ECB) released its study on household finances and consumption last Tuesday.

The Bundesbank’s and the German media’s initial framing of study’s results provided fertile grounds for an increasingly populist tone in the debate. The misrepresentation of data provides a good example of sound studies being misappropriated for advancing the political agenda of different actors in the current crisis.

From fact to fiction

On 21 March, the Bundesbank presented the findings of its panel study on Household Finances (“Private Haushalte und ihre Finanzen”). The Bundesbank’s study, part of an Euro-Area effort to collect data on Household Finances and Consumption highlights the gross inequality in the distribution of wealth in Germany. In the presentation and the accompanying press release, the Bundesbank claims that the median income of households in Germany is lower than that of households in Spain or Italy. However, both the comparison of wealth of German households with that of other European countries and the timing of the presentation, make the Bundesbank seem rather disingenuous.

Credit: Mattias Pettersson (Creative Commons BY NC)

As the original presentation suggests and most media have acknowledged, the study is not suitable to establish meaningful cross-national comparisons. The data collection took place at a different time in Spain and in Germany, which masks the fact that financial and real assets in Spain have lost considerable value during the crisis. The structure of these countries is vastly different in terms of household size, home ownership, pension claims which leads to very different outcomes in terms of the financial position. For example, the Spanish Survey of Household Finances, which the Bundesbank refers to, is based on data from 2008 which does not reflect the effects of the current crisis such as growing unemployment, lower levels of disposable income, and most importantly, depreciation of real estate. According to the Spanish Survey, 89.2% of the total wealth of Spanish households is linked to real-estate. Standard and Poor’s estimate that since March 2008, Spanish house prices have declined by 26% and are expected to drop a further 20%, so the current wealth of Spanish households is considerably lower than that captured in the report used for the comparison.

More importantly, the comparison of households’ wealth is highly misleading in the context of a discourse on solidarity and redistribution. For instance, the larger public sector and better pensions and services that German citizens enjoy are not taken into consideration in wealth studies. The structure of households varies across countries. According to Eurostat, German households have 2.0 members on average while French have 2.2, Italians 2.4 and Spanish 2.7. Moreover, as the Bundesbank shows, home ownership in Germany (44.2%) is much lower than in France (57.9%), Italy (68.4%) and Spain (82.7%). Because of these structural and cultural differences a comparison of household wealth amounts to a comparison of apples and oranges.

Notwithstanding the inherent incomparability of the data – and in stark contrast to the study’s methodological rigour – the Bundesbank chose to frame its findings in such a way that casual observers would only reach one conclusion: that German tax payers, being poorer than Southern Europeans, should not have to bail out the crisis countries. As this article is mostly concerned with the public discourse and not with the data itself, we refer to the FT’s Alphaville blog, which provides an interesting analysis of the comparability of the data, based on the ECB’s study on household finance.

Reactions in the press

Initially, most German media did not fully embrace the Bundesbank’s discourse. The press has largely qualified the results of the study and questioned the comparability of the data. Even Bild, a tabloid usually quick to exploit every opportunity for populist exaggeration, questioned the result. Spiegel Online went so far to criticise the Bundesbank for its rather inept attempt at generating outrage.
Most media presented some background on why German households appear to be poorer, pointing to the fact that Germans tend to prefer to rent, rather than own residential property. Unfortunately, this has not kept them from running with catchy, if grossly misrepresenting headlines that resulted in the furtherance of anti-bailout message. The headlines used by newspapers such as the Frankfurter RundschauDie Welt and faz.net misleadingly claimed “Spaniards richer than Germans” or similar versions of this message.

The notion of greater Spanish, French and Italian wealth has thus found its way into the debate as if it were a self-evident truth. Der Spiegel (25 March, page 32) commented on the deposit tax in Cyprus: “No one in the crisis countries has so far been expected to take a cut in wealth [to solve the crisis]. But why not? According to a recent study by the Bundesbank, Spaniards are richer than Germans.” And for Passauer Neue Presse , the study has “done away with the fairy tale that Germany is the rich uncle” who should be liable for his poor relatives. Other commentators and politicians, too, have been quick to call, however naively, for a responsibility of domestic savers in bail-outs. Unsurprisingly, the readers’ comments are considerably more vitriolic, and it appears as if the Bundesbank has managed to reach the intended audience.

The foreign press also echoed this issue. Most articles emphasise the limited comparability of the study reproducing the caveats already suggested by the Bundesbank and German press. In Spain, El Mundo points out that the provision of public services and social insurance is not part of the Bundesbank’s assessment of wealth, which makes any meaningful comparison impossible. El Economista accuses the Bundesbank’s president, Jens Weidman, of misusing the study to consolidate the Bundesbank’s position that Southern countries should bear the costs of the crisis. In France, the financial newspaper Les Echos criticises the comparison and says that this is a move to put pressure on the ECB and reminds its readers that the study does not count the substantial pension claims of Germans towards household wealth.

From fiction to ‘pulp fiction’

With the ECB’s release of Euro-wide data earlier this week, the issue has suddenly turned into a very heated debate in Germany. Even though the ECB has avoided the Bundesbank’s blunder, some German media outlets have seized the opportunity to resume the blame game combining a much more aggressive tone with a dash of self-pity.

For example, an FAZ  headline read “Germans are the poorest in the Eurozone”. Both FAZ and Die Welt accuse the ECB of holding back the data for fear of controversy. In a rather angry, if fatuous commentary, FAZ – not normally known as a platform for conspiracy theorists – argues that the study, finally lays bare what the media and politicians in Germany had carefully tried to conceal: namely that Germans are poor and that rather than benefiting from the Euro, the introduction of the single currency caused German incomes to shrink relative to those in the Eurozone, while profligacy in soft-currency countries went unchecked. Others remain more nuanced, such as Die Zeit that offers a rebuttal of the notion of Germany as Europe’s poor house.

Bad practice

The Bundesbank seems to have subtly set into motion a grievance discourse that now some very eager commentators and newspaper are disseminating in the public opinion. The explicit comparisons across countries made initially by the Bundesbank in their press presentation were either a schoolboy error or just a borderline unethical strategy to foster an “anti-bailout” discourse in Germany. The selective contextualisation of evidence to advance political goals is not an example of good academic practice. The ECB was cautious in not prescribing the same comparison but it was too late to prevent some media from focusing on what the Bundesbank had already insinuated.

Understanding the current crisis is no doubt complex, given the differences in European economies, divergent national interests and the increasingly divisive public discourses on the crisis. Trusted institutions such as the Bundesbank and the press have a responsibility to provide accurate, fair and nuanced information that can help better understand the crisis and identify potential solutions. The Bundesbank did no one a favour by peddling its reductivist and deliberate misinterpretation of the available facts. Similarly, German media outlets have succumbed to the temptation of populism. The initial restraint the press had shown in the face of the release of the Bundesbank’s study appears to have largely evaporated. FAZ, Die Welt and the other publications are also responsible of fuelling animosities that are already present in the European public sphere.

The data that are at the heart of the debate are not “wrong” but they have been used to frame an issue in a grossly misrepresenting manner. As Gregg Easterbrook put: “Torture numbers and they’ll confess to anything”.

This article is an updated version of one that first appeared at the LSE’s Eurocrisis in the Press blog.

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Note:  This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.

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About the Authors

Stefan Bauchowitz 80x108Stefan Bauchowitz – LSE International Development
Stefan Bauchowitz holds an MA in European Studies from K.U. Leuven and an MRes in Political Science from LSE. He is currently pursuing a PhD in International Development at the LSE. His research focuses on the role of oil and mining companies in developing countries and efforts to regulate their behaviour.

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Jose Javier Olivas  80x108Jose Javier Olivas – LSE Euro Crisis in the Press
Jose Javier Olivas is an LSE Fellow. He holds a PhD in Government and other university degrees in Public Policy and Administration, Economics and Marketing. He has worked in the automotive industry and as consultant for European affairs. He is currently teaching at the LSE and collaborating with LSE Ideas’ Southern European Programme and preparing the publication of Iberian Military Politics: Civil-Military Relations during Dictatorship and Democratisation (2014, London: Palgrave Macmillan). Follow Jose on twitter @josejolivas or visit his personal website.

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