Impact of the Crisis on the Real Economy

The European Parliament's special committee on the financial, economic and social crisis has commissioned a report on the impact of the crisis on the real economy. CEPI welcomes the publication of this study but calls for more investigation as to the role that property played in the crisis and its importance to the EU economy.

The report demonstrates that Europe displayed the same pre-crisis or "bubble symptoms" (house price increase, excess credit growth) as the US. It states that "this crisis was caused by a combination of asset price bubbles, mainly in the real estate sector, and a credit bubble which led to excessive leverage". It goes on to say that the crisis became global because of a sudden rise in risk aversion and drop in demand. Europe is strongly integrated in terms of financial markets and supply chains and so the crisis affected all member countries, even those which had not seen the symptoms of a bubble. Care has to be taken in assessing the impact of the bursting of the bubble which the crisis represents on the real economy.
Although the crisis became a global one, its effects are seen in different countries in different ways. The report seeks to analyze these effects by reference to changes in consumption and employment, rather than changes in the gross domestic product of each country, leading to a standardized "happiness index" for major EU countries. The authors conclude that the legacy from the bubble may well be significant excess capacity in several sectors, and that this will affect the speed and durability of the recovery.

In our view, the role played by property in the crisis is a complicated one and its importance to the economy of the EU needs to be better understood. Further studies and research are needed to investigate this role fully in order to learn the lessons of the crisis and contribute to the future stability of the property market and the EU economy.

The full report is available on the Parliament’s website