Following a period where the wealth gap between rich and poor widened significantly from the late 1990s until the global financial crisis started in 2008, wealth inequality in Germany has since shown some signs of decline. This finding comes from a study prepared by the employer-affiliated Cologne Institute for the German Economy (IW) for the Association of Bavarian Industries (VBW), as reported by the “Süddeutsche Zeitung”.
The massive financial losses during the 2008 crisis affected wealthy individuals more severely than those with little money. However, in the years that followed, several factors combined to change the trend. Economic growth and real wage increases for employees were robust, while ultralow interest rates encouraged lower levels of personal debt. Consequently, many citizens were able to increase their net worth-which is defined as the total of all possessions minus potential liabilities like mortgages, car loans, or kitchen financing.
The COVID-19 pandemic also initially contributed positively to wealth accumulation, as people diverted spending, which would normally go to restaurants and theaters, into investments. This beneficial effect, however, was later negated by the subsequent period of inflation.
Despite these recent shifts, the inequality level in the Federal Republic of Germany remains considerably high when compared to some other European nations. The same pattern of high inequality is observed in other highly developed countries with strong social systems, such as in Scandinavia. In those countries, the necessity for individuals to save privately is lower than in places like the UK or the US, and moreover, statistical measures do not account for the financial claims citizens have against social security systems. If pension accruals, for example, were counted as part of personal wealth, inequality in Germany would be noticeably lower.
Regional differences in wealth are particularly striking. For instance, the net worth in the southern German states stands at €442,100-more than two and a half times higher than in the eastern states, which report €169,100. This disparity is even more dramatic when looking at the median: it is €189,000 higher in the south than in the east, where the median barely reaches €36,000.
According to the IW, a key reason for this regional difference is that people in the former East German states could only begin to build private wealth significantly starting in 1990. Furthermore, the low rate of home ownership contributes to the relatively high inequality across Germany as a whole.
Instead of recommending higher taxes on the wealthy, the IW advises focusing on stronger support for the broader population in wealth accumulation. This could involve reducing taxes and fees for purchasing a house or an apartment.
