Differences in Borrowing Behaviour between Core and Peripheral Economies — Economic Environment versus Financial Perceptions

Using the Eurosystem Household Finance and Consumption (HFCS) data, this paper identifies the key differences in borrowing behaviour between core and peripheral nations. As such, we focus on non-collateralized debt such as credit card loans, bank overdrafts and other forms of non-collateralized debt, which reflect daily borrowing behaviour more closely than does mortgage debt. We examine the differences in levels and prevalence of these debts, and break down these differences into two major components: financial perceptions and the economic environment. We aim to explain to what extent these influences contribute to the differences in debt ownership and levels of holding between core and peripheral countries in Europe. We found that differences in financial perceptions do contribute to the differences in debt in a significant way, while the economic environment contributes little to this outcome. Households in the European periphery are much more conducive to debt if they have the same financial perceptions as those in the core countries in Europe.