The slow and moderate recovery of credit in the euro area (+2,6% y/y in May), despite the presence of historically low rates and a widespread economic recovery, is a highly debated topic today. Research based on empirical evidence has shown that the reduction of private sector debt from the high level reached in the pre-crisis years is partly responsible for the phenomenon.
In the period 1999-2009 in the euro area the incidence on GDP of the liabilities of households and financial companies had risen from 110% to 147% of GDP, with increases exceeding 80 percentage points in the case of Estonia, Greece and Portugal and 100 percentage points for Luxembourg, Ireland and Spain. In the following years, the return from such an exposure led to substantial drops, but not such as to compensate for past increases.
In relation to GDP, private sector debt in the Eurozone stands at 140% (2016) with a particularly wide range of variation between the various economies: from 56% in Lithuania to 351% in Cyprus. On average in the euro area, debt is mainly attributable to non-financial companies (58% of total debt), except in Germany where the incidence of household liabilities is greater than that of businesses (53% vs 47%). .
According to some empirical surveys, the reasonable level of debt would be less than 90% of gross domestic product for non-financial companies and 85% for households. There are six countries in the euro area for which the limit relating to businesses is exceeded (Portugal, the Netherlands, Belgium, Ireland, Cyprus, Luxembourg), two economies which exceed the limit for households (the Netherlands and Cyprus).
According to the ECB, the deleveraging process will continue in the near future, affecting credit dynamics. The prudent recovery of the rate of growth of loans in the euro area can be viewed positively when compared with the new emergency that the United Kingdom and the United States are experiencing due to "easy" credit: especially for the United Kingdom, talks are back bubble warning on consumer credit.
