The EU's financial pinch has turned to poverty

The human fallout of the global financial crisis has reached worrying proportions in Europe, with a quarter of the union's citizens now facing poverty risk. And these figures likely underestimate the extent of the problem.

Around 125 million people in the European Union were at risk of poverty or social exclusion in 2012 according to a report released by Eurostat. It is a sobering reminder of the human element inherent to an economic crisis that began in 2007 and shows few signs of abating.

One in four – that is the share of the EU28 who are at risk of poverty or social exclusion. For Greece, that would be a relief: one in three is at risk there. And for Bulgaria, a dream: one in two people struggle each and every day to make ends meet.

The reality is that these numbers will persist. The hardest hit countries will take years to fix and the outlook remains bleak. The implications of rising poverty are immense and wide-reaching: health and hygiene issues, higher infant and total mortality rates, and increases in crime.

The effects of poverty persist. Those born into poverty tend to be less healthy and less productive as adults, while for adults plunged into poverty it can be difficult to get out. Poverty can become a vicious cycle that feeds on itself and the next generation.

Around 17 per cent of the population in the EU28 is at risk of income poverty. This means that their disposable incomes are below their national at-risk-of-poverty threshold, which Eurostat sets at 60 per cent of the national median equivalised disposable income (after social transfers). For example, if the median equivalised disposable income for a country was $50,000 then the at-risk-of-poverty rate is set at $30,000.

The highest at-risk-of-poverty rates were observed in Greece and Romania (both 23 per cent), Spain (22 per cent), and Bulgaria and Croatia (both 21 per cent). By comparison, poverty is less an issue in countries such as the Czech Republic and Netherlands (both 10 per cent). The at-risk-of-poverty rate was 16 per cent in Germany, 14 per cent in France and 19 per cent in Italy.

However, these data underestimate the actual increase in poverty because they do not account for the decline in median incomes across Europe since the global financial crisis began. This has pushed down the at-risk-of-poverty threshold but the cost of living has not changed. Despite this technical quirk, the measured level of poverty still increased in most countries.

For example, in Greece the median income between 2011 and 2012 fell by 13.4 per cent, masking the true rise in poverty. That result implies that the income distribution has shifted in countries such as Greece, with workers in traditionally low or median income jobs primarily suffering the brunt of the collapse.

In addition, 10 per cent of the EU28 population was considered severely materially deprived in 2012. Eurostat defines this as a person who meets at least four of the following nine criteria: they cannot afford (1) to pay rent/mortgage or utility bills on time, (2) to keep their home adequately warm, (3) to face unexpected expenses, (4) to eat meat, fish or a protein equivalent every second day, (5) a one-week holiday away from home, (6) a car, (7) a washing machine, (8) a colour TV, or (9) a telephone (including mobile phone).

So one could reasonably assume around 10 per cent of the EU28 population cannot afford to own or run a car (reducing job prospects), cannot afford to eat well (causing malnutrition and other health problems), or live in dirty or cold living conditions (greater health issues).

Not surprisingly, the extent of this deprivation differs significantly across Europe, with Bulgaria (44 per cent), Romania (30 per cent), and Hungary and Latvia (both 26 per cent) particularly high. This is less an issue for the more developed European economies, with Germany, Spain and France all at between 5 and 6 per cent.

Finally, Eurostat estimates that around 10 per cent of people in the EU28 live in households where the adults work less than 20 per cent of their total work potential. Not surprisingly this was led by the countries with the highest unemployment rates, such as Croatia, Spain and Greece.

There are a number of ways to measure poverty and some will indicate that the risk of poverty is not as high as these measures suggest. However, the takeaway point is that poverty has increased significantly in Europe since the global financial crisis began. It reminds us that the crisis isn’t just about banks or government debt, it is not about inflation or interest rates. The crisis is really about people and the collective failure of governments across the world to safeguard the economic and social interests of their citizenry.

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