PERSPECTIVE Social Europe in the Crisis MICHAEL DAUDERSTÄDT AND CEM KELTEK July 2015 At a Glance In 2013, Europe’s burgeoning inequality, ever underestimated by the EU, remained at a high level. The catch-up process of the poorer countries that had been observed until 2009 was scarcely making headway any longer due to austerity policy and weak growth. Even though domestic inequality had worsened in only a few countries – including Germany – since 2012, Social Europe’s pledge of cohesion remained largely unfulfilled. Only growth based primarily on rising incomes among poorer population groups can provide sustainable prosperity for all. Up to the threefold crisis of the years 2008–2010 – financial market crisis, great recession and public debt panic – Social Europe was able to point to solid progress. 1 Unemployment was falling; life expectancy was rising; and income inequality, although increasing in some countries, was declining in the European Union(EU) as a whole thanks to growth in the poorer member states. The development of European inequality is the focus of the present analysis. To that end it considers the income disparities between the richest and poorest quintiles of the EU population(quintile ratio S80/S20). Inequality in Europe Although the EU Statistical Office(Eurostat) publishes data on national quintile ratios, for the EU as a whole it provides only the weighted average of national ratios. This EU figure makes no methodological sense, however, and deviates from the actual S80/S20 ratio for the EU 1. See Michael Dauderstädt,»Convergence in Crisis. European Integration in Jeopardy«, Berlin 2014(http://library.fes.de/pdf-files/id/ipa/11001.pdf) as a whole because Eurostat abstracts from the high income differences between the member states and their dynamics. 2 Inequality in Europe in fact has two dimensions: (i) differences between the average per capita incomes of EU member states and(ii) differences between per capita incomes within countries. In order to link the two – which is necessary for a realistic estimation of inequality in the EU – one has to construct the richest and the poorest European quintiles, which can be compiled from a certain number of the richest and poorest national quintiles in the member states, with the poorest states contributing more than the richest. 3 Tables 1a and 1b present the relevant composition for 2013, which differs slightly depending on whether one compares incomes in terms of exchange rates or purchasing power standards(PPS). If one sums the incomes of the red and green national quintiles one obtains approximately the incomes of the poorest and richest quintiles in the EU, each comprising just under 100 million people. The ratio between these two incomes is the S80/S20 ratio for the EU as a whole, which in 2013 was 9.5 in euros and 6.2 in PPS. The richest quintile – calculated in terms of exchange rates – thus earns almost ten times as much as the poorest. This means that inequality is more or less as high as in China and higher than in the United States, India or Russia. 4 Eurostat’s incorrect average value is only five. 2. For more detail on the issue of appropriate calculation, see Michael Dauderstädt,»Ungleichheit und sozialer Ausgleich in der erweiterten Europäischen Union«, Wirtschaftsdienst, Vol. 88, 4, April 2008, 261– 269, as well as Michael Dauderstädt and Cem Keltek,»Immeasurable Inequality in the European Union«, Intereconomics 2/2011. 3. The procedure is described in detail in Michael Dauderstädt and Cem Keltek,»Krise, Austerität und Kohäsion: Europas stagnierende Ungleichheit«, Bonn 2014(http://library.fes.de/pdf-files/wiso/10578.pdf) 4. According to the UN’s Human Development Report the values are 4.9 (India), 7.3(Russia), 8.4(USA) and 9.6(China)(http://hdr.undp.org/sites/ default/files/reports/14/hdr2013-en-complete.pdf)