According to Visa, three years have passed since inflation peaked, but Europeans are still limiting their purchases to essentials. A new surge in prices, triggered by the war in Iran, has only exacerbated this situation. Since 2019, household consumption has risen by 5.5% in the eurozone and by 2% in the UK, while in the US it has risen by an impressive 18%.
Marike Blom, chief economist at ING Bank, emphasizes: “This explains a significant portion of the growth gap between the U.S. and Europe. If households had returned to their pre-pandemic savings levels, the eurozone’s GDP would be 1.3% higher.”
The Wall Street Journal reports on this, citing evidence based on numerous surveys of the general public in European countries. While Americans spend money from their credit cards with a light heart, Europeans—especially those from northern regions—are switching to a frugal mode. Thrift is ingrained in their mindset, the publication notes.
Frugality Is Bad for the Economy
In recent years, Europeans have been saving with redoubled vigor, creating yet another headache for the region’s economy, the publication writes. Consumers’ reluctance to spend is the key reason why Europe lags behind the U.S., where active consumption—especially among the affluent—drives GDP upward.
The problem isn’t a lack of funds. Real disposable income in the eurozone is now 8% higher than before the pandemic. However, the savings rate last year was about 15%, compared to 12.5% before the crisis. In the UK, this figure nearly doubled. In the U.S., by contrast, the savings rate fell below pre-pandemic levels.
“We can afford to spend, but we simply choose not to,” says Shelley Perera, a resident of a prestigious London neighborhood.
European companies that produce luxury goods—bags, watches, and clothing—are now critically dependent on American and Asian buyers.
Young Europeans are increasingly skeptical that the public pension system will be able to support them in their old age due to the aging population. Vincent Boucar, a 32-year-old consultant from Paris, manages his budget in Excel and sets aside 50% of his salary, investing it in stocks and ETFs.
However, most Europeans remain skeptical of the stock market. They keep about a third of their financial assets in cash or in bank accounts earning low interest rates, which often fail to keep pace with inflation. Economists are calling for these trillions of euros to be channeled into more productive investments, but the psychological barrier remains insurmountable.
Monika Müller, a financial psychologist from Frankfurt, notes:
“In Germany, money is associated with security, while in America it is associated with freedom. For many Europeans, the idea of losing control over their capital through investments seems dangerous. But avoiding risk means no growth.”
