Irish Economy
German living standard highest in Europe; Irish, Italians, Spanish among Eurozone's poorest
By Michael Hennigan, Finfacts founder and editor
Jun 19, 2014 - 8:35 AM

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The typical German living standard is the highest in Europe while the Irish, Italians and Spanish are among the Eurozone's poorest, according to data published Wednesday by Eurostat, the EU's statistics office.

In measures of per capita consumption and GDP (gross domestic product), Luxembourg is an outlier as half its workforce live beyond its borders, thereby distorting economic indicators.

In recent times Eurostat has been highlighting Actual Individual Consumption (AIC) as a measure of living standards and it says that it "consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit organisations. In international volume comparisons of consumption, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services, differs a lot across countries."

It uses a Purchasing Power Standard (PPS), which is an artificial currency unit that eliminates price level differences between countries.

Eurostat said on Wednesday that in 2013 Germany was 25% above the AIC average in the European Union and Austria, Sweden, Denmark, Belgium, Finland, France and the United Kingdom recorded levels between 10% and 20% above the average, while the Netherlands was 8% above. In Ireland, Italy, Cyprus and Spain, the levels were up to 10% below the EU28 average, while Malta and Greece were between 10% and 20% below.

The chart above (from the Eurostat report - pdf) shows that the Eurozone average AIC in 2013 was 106. Germany is at 125, and both France and the UK are at 113 while Ireland and Italy are at 97. Cyprus is at 92, Spain at 91, Greece at 82 and Portugal at 76.

Irish GDP per capita was at 126 compared with the EU28 average of 100 and Germany's was 124.

Believing bullshit to be fact is toxic when running a business and more dangerous of course when running a country.

With the distortions caused to the GDP and GNP (gross national product) metrics, by the foreign owned exporting sector - - tax avoidance by just 3 companies Google, Microsoft and Facebook accounted for €34bn or 36% of Irish services exports in 2013 - - there are huge opportunities for delusion in Ireland and it thrives through boom and bust.

Medtronic, the medical devices firm, in recent days announced that it will become an "Irish" company with a payroll of 87,000 -- more than half the employment in Ireland's FDI exporting sector.

Mario Draghi, ECB president, believes that we have had a double digit fall in unit labour costs and this is what the European Commission says on our top R&D spenders: "Three companies based in Ireland contributed 68% of that country's R&D investment: Seagate Technology (15.0%), Covidien (23.9%) and Accenture (31.2%)."

The R&D spending is mainly in the United States not Ireland but that doesn't stop ministers bragging how the EC has ranked Ireland highly for innovation.

Less than 1,000 people are working in Irish-based aviation leasing firms that own over 3,000 commercial aircraft valued at over €80bn -- equivalent to half annual GDP. So lots of capital formation but a small number of workers.

In 2006 and 2007 Bank of Ireland Private Banking published 'Wealth of the Nation' reports (this is the 2007 one -pdf).

Even allowing for the fantasy Irish wealth, Japan was ranked the wealthiest nation on earth - - and that was a dubious selection.

I remarked in 2007 about a Cabinet Office survey that showed Japanese felt a high level of anxiety about their daily lives, the highest angst level recorded since the poll began 40 years before. A third of the workforce were temporary workers earning less than the Irish minimum wage - so both wealthy and poor.

As for the durability of Irish wealth, in 2010 Rossa White, then chief economist at Davy, noted in a commentary, 'Years of high income largely wasted," [pdf]:

One of the great misconceptions about Ireland is that it is a wealthy country. Ireland relentlessly climbed the income per capita table year after year from 1994 on, but it has slipped back below mid-division in the euro area following a savage recession. Yet it was never wealthy: those years of high income were largely wasted."

White who is now with the National Treasury Management Agency (NTMA) added: "Probably the best way to compare the wealth of countries is to look at the capital stock. Years of high income can be turned into physical wealth if invested properly. Let's take three small nations as an example: Belgium, Finland and Ireland. The three are closely matched in the euro-area income per capita table, albeit that Ireland slipped behind in 2009. But no Irish resident who has visited Belgium or Finland would have the audacity to claim that this country is wealthier. Transport infrastructure is vastly superior in those countries, as is the telecommunications network, and public services are delivered from higher-spec schools and hospitals."

It's interesting in terms of wealth that the relatively poor countries, Spain, Ireland and Greece, tend to have the highest home ownership, compared with Switzerland, Germany and Denmark, who have the lowest levels.

Eurostat's consumption indicator was one of the recommendations of a report [pdf] that was requested in 2008 by Nicolas Sarkozy, French president, who asked three economists - - Joseph Stiglitz of Columbia University, Amartya Sen of Harvard University and Jean-Paul Fitoussi of the Institut d'Études Politiques de Paris - - to propose additional indicators that would measure aspects of economic and social progress that are not directly evident in GDP data.

Two of the three economists are Nobel laureates and they are respectively natives of the United States, India and France.

While it is informative to track the performance of economies as a whole, trends in citizens’ material living standards are better followed through measures of household income and consumption. Indeed, the available national accounts data shows that in a number of OECD countries real household income has grown quite differently from real GDP per capita, and typically at a lower rate. The household perspective entails taking account of payments between sectors, such as taxes going to government, social benefits coming from government, and interest payments on household loans going to financial corporations. Properly defined, household income and consumption should also reflect in-kind services provided by government, such as subsidized health care and educational services. A major effort of statistical reconciliation will also be required to understand why certain measures such as household income can move differently depending on the underlying statistical source."

US Congress: House Committee on Financial Services

Finfacts Dec 2014: German per capita standard of living highest in Europe; Ireland below EU average


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