The key role of the household savings rate in the euro zone

- "The household savings rate in the euro zone is high and has been rising since the start of the crisis, which explains the growth gap in 2010 between the United States, where households are dissaving again, and the euro zone."
- "The euro-zone countries are now going to reduce their fiscal deficits, which will be bearable in terms of growth only if households in the euro zone save less. Is it credible that this could occur, with no margin for lowering interest rates? The situation is complex and many trends are pointing in different directions:
• households can react positively (by saving less) to the reduction in uncertainty due to the reduction in the fiscal deficits and the announcement of the method used;
• but, if there is a slowdown in growth and if households are heavily indebted, their financial position deteriorates and they save more;
• moreover, households can react negatively (by saving more) to certain measures used to reduce fiscal deficits, e.g. a reduction in social transfers and the generosity of pension systems; if there is an increase in taxes on households or consumption, consumption declines irrespective of the savings rate trend;
• the consolidation of pay-as-you-go pension schemes, where it occurs, should normally result in a (favourable) decline in the household savings rate."
- "Lastly, we can look at the trends seen in those countries where fiscal consolidation has already begun (Ireland, Greece): in these countries, the economy is very weak and the household savings rate is rising."
Natixis Flash Economics 329 20100628