Why is Europe saving so much

Through saving, people want to ensure against possible economic risks; but this does reflect on the economy.

Europeans continue to save a lot of their earnings. Western and Northern European countries are especially known as the world’s greatest savers. They have been rarely seen to use a credit card or take a loan to buy a house. Their savings are high and they are judicious spenders. Though there are large differences in rates of household savings, the rate of savings is still high, on an average. Germany, France and Belgium, for example, save a relatively large share of their income. The average savings rate in Europe is about 6.5 percent, the largest saver being Sweden at 15.8 percent.

Taught by an experience that excessive spending based on borrowing has in more ways than one, led to the crisis, economists in the USA far more highlight the benefit of small accounts such as in Europe. The French government, for example, attracted small savers through ‘Livret’, A savings account, which is tax-free and allows a minimum balance; and the Germans developed savings culture through promotion in schools, and with accounts sans fees for the young.

This might reflect on the economy prominently. In the short term, raising consumption through loans is acceptable because it has a positive effect on production. However, this may be harmful in the long term, since it may undermine the economic stability. On the other hand, savings exacerbated the recession, as it reduced consumption and thus employment. In order to increase borrowing and consumption growth, and reduce the savings, negative interest rates became an official government tool.  So, in reflection of such a scenario, the current situation cannot be good. With a negative interest rate, the longer someone saves, the less money they would get, but the longer the loan is repaid, the lesser is that is saved. This means that it is better to borrow money than save. Such economic illogic to lead to a new recession.

However, in some countries, regardless of the current circumstances, there is a lot of distrust and fear of uncertainty, and savings are still maintained at a high level relative to the consumption. Workers are afraid of the safety of their incomes and companies for the placement of their products and services. Furthermore, since the retirement age in Europe is increasing, so many Europeans have already put money aside to secure a safe future. On the one hand, this could be an opportunity for companies to align their offers with future demand, which is likely to be related to travel, leisure or luxury items. For the state, however, this is not the best option, since high savings adversely affect economic growth and could lead to a new recession.

Considering that everything is interconnected, it remains to be seen which way the wind will blow. Given experience, a more likely situation is that Europe will stay on its way to keep high-level saving. This, however, can lead to the fall of the companies’ profit and decline of the respective stock prices. A possible option for many may also be a bankruptcy. And in the end, again, we’ll all be in trouble.

 

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