Granular EU: A forecast of spending power cohesion on a subnational level

“United in diversity.” (Official motto of the European Union)

The official motto of the EU highlights the different characteristics and peculiarities of the single member states of the European Union. But, one of the biggest drivers for European unification is its cohesion policy. It has been an important element of EU policy since the Single European Act of 1986 and anticipates redistribution between richer and poorer regions in the EU to counterbalance the knock-on effects of unequal economic development.

On the 26th of May, the elections for the European Parliament are going to take place. All 28 member countries (yes, the UK is still a part of the EU) will vote on its composition for the next five years and as it looks right now, it is going to be a decisive vote on the future of the EU. Populist parties continue to gain electoral support, questioning the success story of the EU. At World Data lab, using our numbers and fact-based approach, we want to shed some light on this issue and take a look at annual spending power per capita capabilities and its trends until 2035. Our tool, MarketPro, allows us to provide some useful insights on individuals' economic development in the medium run. Our calculations are based on IIASA demographic data and the most recent World Economic Outlook data from the IMF.

Capitals and their total spending power

In our latest special on Brexit (London – Paris: A Tale of Two Cities) we conducted a comparison of these two cities. In this post, we will continue this approach and take a look inside the spending power of several European capital regions. We picked capital regions because they are the centerpiece of urbanization. Currently, the majority of Europeans live in cities, a trend which is due to increase over the coming decades.

What follows is a comparison of the capitals of the five biggest economies in the EU (Germany, UK, France, Italy, and Spain) to analyze whether this ranking is reflected in terms of annual spending power capability per capita. Coincidentally, these five capital regions also have the highest population in the EU. As of 2019, Paris (or rather the wider administrative area of Île de France) has a population of 12.5 million; London (Inner and Outer): 8.4 million; Madrid: 6 million; Rome (the wider administrative area of Lazio): 4.5 million; Berlin: 3.6 million.

In terms of total spending power, Île de France (with Paris) has $349 billion (in 2011 PPP) to spend in 2019, which will grow to $394 billion by 2035; London $237 billion (2019) and $369 billion (2035); Madrid $151 million (2019) and $200 million (2035); Lazio (with Rome – but without the Vatican) $66 million (2019) and $69 million (2035); and Berlin $72 million (2019) and $101 million (2035). In terms of growth rates, London's spending power will increase on average by 2.48% annually within this time frame. Berlin's spending power will grow by 1.99% per year, followed by Madrid (1.66%) and Île de France (0.72%). Lazio's spending power is forecasted to grow rather slowly at 0.26% per year.

Spending power capability per capita in capitals

Looking at the expenditure power per capita per year within our sample, Londoners lead with $28,312 to spend (increasing to $34,285 by 2035), followed by Parisians with $27,797 ($28,395 by 2035), Madrilenians with $25,161 ($33,853 by 2035), Berliners with $20,064 ($24,042 by 2035), and Romans with $14,594 ($15,740 by 2035). The respective national average spending power capabilities mirror the ranking of the biggest economies of the EU with $24,849 for Germans in 2019 ($30,678 by 2035), $24,322 for British ($29,111 by 2035), $21,277 for French ($25,688 by 2035), $20,146 for Italians ($23,097 by 2035), and $17,617 for the Spanish ($22,269 by 2035).

Two aspects catch our eye: First, people living in Lazio/Rome have a significantly lower spending level than their counterparts in other capital regions of our sample. The closest capital region to Lazio/Rome is Berlin who has almost $4,500 more and which is, considering the above-mentioned annual growth rates, bound to leave Rome far behind. The second aspect is that it’s only Lazio and Berlin that have less money to spend than their respective national averages. In both countries, the economic powerhouses (which also translates into per capita spending power) are found somewhere else. For example, people living in Lombardia in Italy (the NUTS 2 region with Milan, Como, Brescia, Bergamo, Mantova, and Pavia) have $26,856 in 2019 and are expected to have $29,455 by 2035 to spend; people in Hamburg in Germany have $23,089 and are expected to have $23,820 by 2035. It is anticipated that Berlin will overtake Hamburg by the end of 2034 but will still be significantly behind the German average.

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