The Over-Indebtedness of European Consumers A View from Six Countries

Abstract

Six years into the global economic and financial crisis, many European countries have suffered profound economic, political, and social repercussions. Governmental and constitutional crises, high levels of public debt, the adoption of austerity measures, unprecedented levels of unemployment, and the spreading of poverty have marked many European societies. While the EU is in a process of reexamining the whole design of the banking system with far-reaching political and institutional consequences, the impact of the economic crisis on indebted consumers, and specifically those with mortgages, has been much less discussed. The Working Paper presents the result of a research on the effects of the financial and EURO crisis in six European countries within and outside the Eurozone (Greece, Hungary, Iceland, Portugal, Romania, and Spain) having in common that they received international bailout loans under the condition of implementing intrusive austerity measures. In those countries consumers are still facing increasing levels of (over-)indebtedness and struggle with the effects of the crisis, both in financial and social terms. In this light, the studies pay attention to both the social reality and the legal change which is undergoing as triggered by legislative reforms and judicial decisions. The studies also lay open the shortcomings of a EU consumer policy which is largely based on the image of the reasonably circumspect consumer who is supposed to be autonomous, self-reliant, and reasonably well informed. In this regard, the EU suffers from a clear internal market bias that promotes and requires easy access to consumer and mortgage credit, without paying sufficient attention to the possible drawbacks in terms of social exclusion.

That's an Order! How the Quest for Efficiency Is Transforming Judicial Cooperation in Europe

“…The societally divisive Spanish litigation in the area of consumer protection is a case in point. After the 2008 collapse of the financial sector, citizens defaulting on their mortgage payments were being evicted from their homes en masse (Domurath et al ., 2014). This spurred a protracted litigation over the fairness of the contract terms in mortgage loans, concluded between individual consumers (private parties) and banks.…”

The Effects of the 2012 Spanish Law Reform to Protect Mortgage Debtors

“…because the restructuring results in a monthly payment of over 50 percent of the total income received by all members of the household, the mortgagor has the option to apply (within one month after the unfeasibility of the restructuring plan has been acknowledged) for the implementation of additional measures consisting of a reduction of the debt, although the bank is not obliged to accept this application. These additional Other European countries that also faced a dramatic increase in foreclosures and evictions passed similar law reforms (Domurath et al, 2014 , and (ii) can induce strategic defaults (when the appraisal value of the property is higher than the current market value -i.e., underwater mortgage). To these negative effects we could add that it is not clear whether these "urgent" measures have really contributed to a significant reduction in the number of foreclosures in the short term.…”