WRITTEN QUESTION E-3338/02

by Kathleen Van Brempt (PSE) to the Commission

(26 November 2002)

Subject: Money illusion

The number of debt remission arrangements in the Netherlands has increased by 7 % since the introduction of the euro. The main reason given is not the increase in prices but money illusion. Consumers have lost their bearings. During the past year they have bought not only more items, but also the most expensive versions. Many people are clearly finding it difficult to judge whether a certain price in euro is too high or too low for what they want to buy.

Is the Commission aware of the growing number of debt remission arrangements in the EU?

If so, does it have related figures?

If so, what does the Commission consider are the reasons for the growing number of debt remission arrangements?

In the Commission's view, what proportion of the increasing number of debt remission arrangements can be accounted for by money illusion?

A great many European consumers are still experiencing problems in using the euro. Does the Commission intend to introduce measures to help consumers become more familiar with the euro? If so, can the Commission outline the main initiatives?

Answer given by Mr Byrne on behalf of the Commission

(3 February 2003)

The general issue of over-indebtedness of European households has to be distinguished from the specific issue of any over-indebtedness possibly linked to the introduction of the Euro via the notion of money illusion.

Referring to the general issue of over-indebtedness, the Commission has launched a statistical study in 2001, carried out by the company Opinion Research Corporation Orc Macro and available on the web(1).

For the specific case of money illusion, the Commission has no evidence to suggest that the introduction of the Euro has caused such problems in general.

However, in some countries, difficulties for the population in adapting to the value of the Euro may have created some price confusion, particularly where the level of the conversion might induce consumers into erroneous interpretation. In the Netherlands, the National Institute for Budget Information (NIBUD) has carried out a survey indicating that 8 % of households (i. e. about 185 000 people) are or will be soon over-indebted due to so-called money illusion. According to the survey, these people have not taken into account the difference in value between the Euro and the Dutch Guilder (approximately 1: 2). Spending patterns that disregard this, considering e. g. the value as more or less 1:1, may obviously lead to problems. The NIBUD study, entitled Financiële problemen door de invoering van de Euro is available on web page www.nibud.nl.

The Commission follows this issue and, at the moment, it is difficult to make any firm forecast on developments. The Commission is not aware of any other studies similar to that of NIBUD concerning countries other than the Netherlands. However, in the recent Commission Communication The introduction of Euro banknotes and coins, one year after of 19 December 2002(2), price confusion due to the conversion rate and the general issue of thinking in Euro are given attention (see points 4.2 and 4.3).

Moreover, following the above-mentioned Communication and in order to help consumers to get used to thinking in Euro, the retail sector will display double prices until 30 June 2003 at the latest, while informing their customers well in advance of this change.

The practical introduction of Euro notes and coins has been a general success. Appropriate measures to help consumers become more familiar with the Euro were put in place in the period leading up to the changeover in 2002 and have been quite successful.

(1) http://europa.eu.int/comm/consumers/policy/developments/fina_serv/fina_serv06_en.pdf.

(2) COM(2002) 747 Final of 19.12.2002.