Varieties of Private Household Debt in Europe: Incompatibility of Culturally Diverse Lending Regimes Between Germany and Italy?

Abstract

This article examines the varying development of private household debt across European countries, using a mixed methods design. Quantitative analysis demonstrates that trade deficits, public debt and unemployment spending influence the volume of private debt. While this suggests a high problem load for Italian households, a comparative case study on Germany and Italy reveals that more German than Italian households end up in critical debt. This is explained by the two countries’ different cultures of lending. Italian households borrow more heavily from family and friends than German ones. Moreover, the competitive dynamic of the German growth model creates incentives for low-income groups to borrow; to the extent this dynamic affects both countries, this translates into demand for more risky loans in Germany and economic pressure on families in Italy, ultimately limiting the compatibility of the different lending regimes.