Household financial fragility across Europe

We investigate households’ financial fragility in 12 European countries using the first wave of the Household Finance and Consumption Survey. Financial fragility is defined by accounting for both income constraints and portfolio composition and modelled by means of a bivariate probit. We find that in all countries holding an illiquid portfolio increases the likelihood of being financially fragile, while having a mortgage generally reduces it, albeit there are relevant differences across countries. Decomposing the observed differences wrt Germany (reference country), we prove that household characteristics drive all countries towards higher financial fragility, while in the Netherlands and Luxemburg the institutional set-up is able to counterbalance this effect.