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Private sector deleveraging in Europe

Author

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  • Cuerpo, Carlos
  • Drumond, Inês
  • Lendvai, Julia
  • Pontuch, Peter
  • Raciborski, Rafal

Abstract

The current crisis revealed the unsustainable levels of private sector indebtedness, fuelled by a prolonged period of rapid credit expansion during the upturn phase in some EU Member States. The subsequent deleveraging process now taking place, although necessary, stands as a source of concern in terms of its implications for economic activity. Against this background, this paper develops an analytical framework to assess private sector debt sustainability. Our approach revolves around two axes: (i) identifying and quantifying sectorial debt overhang pockets that are likely to generate high deleveraging pressures; and (ii) exploring the interactions between such deleveraging pressures and economic and credit market conditions. Based on the precedent analysis, policy implications are also discussed.

Suggested Citation

  • Cuerpo, Carlos & Drumond, Inês & Lendvai, Julia & Pontuch, Peter & Raciborski, Rafal, 2015. "Private sector deleveraging in Europe," Economic Modelling, Elsevier, vol. 44(C), pages 372-383.
    • Handle: RePEc:eee:ecmode:v:44:y:2015:i:c:p:372-383
    DOI: 10.1016/j.econmod.2014.07.034
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    References listed on IDEAS

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    2. Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2018. "Nonfinancial debt and economic growth in euro-area countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 17-37.
    3. Biswajit Banerjee & Jelena Ćirjaković, 2021. "Firm Indebtedness, Deleveraging, and Exit: The Experience of Slovenia during the Financial Crisis, 2008–2014," Eastern European Economics, Taylor & Francis Journals, vol. 59(6), pages 537-570, November.
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    6. Barbosa, Diogo & Carvalho, Vitor M. & Pereira, Paulo J., 2016. "Public stimulus for private investment: An extended real options model," Economic Modelling, Elsevier, vol. 52(PB), pages 742-748.
    7. Pierluigi, Beatrice & Sondermann, David, 2018. "Macroeconomic imbalances in the euro area: where do we stand?," Occasional Paper Series 211, European Central Bank.
    8. Cristina Badarau & Florence Huart & Ibrahima Sangaré, 2021. "Households saving and financial spillovers in the Euro area," Bulletin of Economic Research, Wiley Blackwell, vol. 73(4), pages 660-687, October.
    9. Kleczka, Mitja, 2015. "Monetary Policy, Fiscal Policy, and Secular Stagnation at the Zero Lower Bound. A View on the Eurozone," MPRA Paper 67228, University Library of Munich, Germany.
    10. Carvalho, Daniel, 2020. "Leverage and valuation effects: How global liquidity shapes sectoral balance sheets," International Review of Financial Analysis, Elsevier, vol. 72(C).
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