Already wealthy countries such as Switzerland and Germany have added over €1trn and €2trn in net wealth since 2007, while net wealth in Spain and Greece has fallen by 28% and 23% respectively. At the same time, the wealthiest 10% of all European households own over half of the continent’s assets. The Swiss private bank defines net wealth as gross financial assets minus debt plus real assets.
Out of balance
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According to Burkhard Varnholt, chief investment officer of Julius Bär and one of the authors of the report, this is a worrying development, not only from a normative point of view but also for investors. “It is important to understand that excessive inequality slows a country’s economic growth and weakens aggregate demand.”
The increasing concentration of wealth follows from capital returns being consistently higher than economic growth. Global equity market capitalisation has increased six times faster than global GDP since 2009. Wealthy people benefit disproportionately from this as they tend to be relatively heavily invested in equities.
Teutonic wealth concentration
Julius Bär’s report, which encompasses all countries Expert Europe covers except for Scandinavia, found that net wealth per person is highest in Luxembourg and Switzerland, followed by Belgium and The Netherlands. The latter country is not only one of the richest, with 9% of Dutch households presiding over more than €1mln in net wealth, but wealth is also relatively evenly spread. The wealthiest 1% of Dutch households only own 13% of total net wealth in the country, compared to 40% in Austria and 35% in Germany.
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There is quite a dispersion between income inequality and concentration of wealth in Europe. While Austria and Germany top the list in terms of wealth concentration, income inequality in both countries is below the European average. On the other hand, wealth is relatively evenly spread in the UK, despite the country’s high level of income inequality. This anomaly can at least partly be explained by the inclusion of real assets (mainly residential property) in the equation. While the rate of home ownership in both Germany and Austria is among the lowest in Europe, real assets still form a relatively large share of net wealth (73% and 71% respectively). Europe-wide, real assets make up two thirds of total net wealth.
Click here to view the Julius Bär Wealth Report Europe.
