22 Nov 2012

Household Debt in Europe’s Periphery: The dangers of a prolonged recession

Ales Chmelar

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The second-dip recession in Europe’s periphery has created a poisonous mix, which risks threatening further the financial system and the economy. Against this background, this ECRI Commentary argues that time matters in the household deleveraging cycle and that a swift recovery is one of its most vital parts. The paper also assesses the extent to which self-feeding phenomena related to household debt have already materialised and evaluates the risks for countries that have so far been spared their full effects. It also offers a theoretical policy response towards a more sustainable household credit sector and overall economic recovery.

Ales Chmelar is a CEPS-ECRI Research Assistant.