Lack of Adjustment of the Cyprus Household Sector Results from the Eurosystemms Household Finance and Consumption Surveys

Abstract

The results from the second wave of the Eurosysystem’s Household Finance and Consumption Survey (HFCS) indicate that Cyprus households experienced very large falls in their incomes and value of real assets between 2009/2010 and 2013/2014. However, despite their worsening financial situation households largely maintained their relatively high level of consumption during the crisis years from 2012 onward by taking on more debt and running down their financial assets. This relative failure of Cyprus households to adjust their expenditures and repair their balance sheets during recent years has resulted in huge debt problems for many households and their creditors. Indeed, HFCS estimates indicate that the ratio of required debt payments to income for Cyprus indebted households reached 35.7% in 2014 and was an overwhelming 64.1% for the least-wealthy bottom 20%. Policy recommendations for dealing with the serious financial difficulties of households are advanced including a program to write-off the debt of households which do not have the ability to repay.