The Portfolio Society in Europe: Financial Intensification and Household Debt in Six Countries

During the global housing boom that preceded the 2008 financial crisis, household debt increased substantially in many countries, including many European countries.  Theoretical accounts of the impact of financialization on households have linked rising debt burdens to a fundamental transformation of household financial behavior, a trend Davis (2009) calls the emergence of a “portfolio society.”  This paper assesses the variation in this development across Europe, focusing on six countries (France, Germany, Italy, the Netherlands, Portugal and Spain) using a new source of household-level data.  We distinguish between financial intensification, inclusion and expansion as explanations for variations in household debt levels.  Financial intensification implies an increase in risky borrowing behavior consistent with the “portfolio society” concept.  Our results show that inclusion and expansion explain only part of the cross-national variation in mortgage debt to income ratios in these countries, implying that a substantial portion of the variation must be explained by household borrowing behavior.  Variables capturing concrete forms of financial intensification are more strongly associated with debt levels in “high debt” countries than “low debt” countries; however, though intensification is limited in the Netherlands, underscoring the variation in household borrowing models in Europe.