Household worth falls 37.7% from peak

Household net worth has fallen 37.7% from its peak in the second quarter of 2007 to a current level of €446.4bn, which works out at €97,392 per person, according to the latest set of quarterly financial accounts released by the Central Bank.

Household wealth fell by €5.5bn, or 1.2%, in the second quarter of this year compared with the first quarter. The continued decline in net worth was caused by the fall in the value of household assets and, to a much lesser degree, the decrease in value of financial assets, said the Central Bank.

Household indebtedness fell to €178.5bn over the second quarter, which is €38,938 for every person in the country. This is the lowest level of household debt since the first quarter of 2007. It peaked at €203.8bn in the fourth quarter of 2008 and has dropped by 12.4% since then.

Household savings reached €2.7bn over the second quarter, which is the third consecutive months of savings increases. The higher savings ratio was attributed to continued debt reduction and a recovery in financial assets.

Total private sector debt grew by 5% over the second quarter to reach 316% of GDP. Government liabilities increased by €6bn to €192.7bn over the second quarter, which reflected the receipt of €5.2bn in Troika funding over the quarter and the Government’s return to the debt markets for the first time in two years.

Meanwhile, Central Bank governor Patrick Honohan addressed the David Hume Institute in Edinburgh yesterday.

He said the original design of the euro was flawed and its architecture inadequate to deal with the current crisis.

The eurozone authorities were in the process of developing a framework that would be sufficiently robust to withstand crises in the future.

Mr Honohan said that much is expected from banking reform, which includes proposals for a single European supervisor, a common deposit guarantee regime and a common resolution agency.

A single supervisor should not be seen as an intrusion into national policy — rather it has the potential to benefit everybody.

A common deposit insurance system will improve confidence in the banking system but it will not protect against wholesale bank runs in the future. These are triggered by events much bigger than a flight of retail deposits.

The ability of a common resolution regime in the future to ensure public funds are used in burden sharing depends on proactive and prompt behaviour by the single supervisor.

“Perhaps I have ventured enough into the uncertainties of the design and implementation of euro 2.0 to convince you that this makeover is indeed a large and ambitious venture,” he said.

“This is what we are working on. Its accomplishment over the coming years is the sine qua non to re-establishing smooth and effective operation of finance and banking in the euro area, and that in turn is of course a prerequisite of a return to sustained growth, employment and prosperity in all of the regions of Europe.”