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February 1, 2013

Lingering Bad Debts Stifle Europe Recovery

The moving boxes were in Emer O’Grady’s bedroom, waiting to be packed with the contents of a home she can no longer afford. But selling her three-bedroom brick house in the north of Dublin hasn’t ended her financial bind: The 34-year-old psychotherapist and her former partner still owe some $340,000 on their mortgage.

Ms. O’Grady is a member of Europe’s Generation Negative Equity, homeowners in their 30s, 40s, and 50s who bought houses during a property bubble that burst after the global financial crisis struck in 2008. They live in Ireland and Spain—two of Europe’s hardest-hit economies—but also in places like the Netherlands and Denmark that have so far weathered the continent’s financial troubles relatively well.

Like their brethren in the U.S., they borrowed big during boom times when credit was easy and home prices were rising. Now their efforts to repay mortgage debt could stunt growth for years to come in a region already hurting from government-debt crises in Greece, Portugal and elsewhere.

In the U.S., borrowers who can’t meet their mortgage payments can often shed that debt by turning over the house keys to their banks, without resorting to bankruptcy and with little chance they will be held accountable for any unpaid balance, although their credit reports get tarnished. In much of Europe, that isn’t the case, and tough national bankruptcy laws make it far more difficult to escape creditors by seeking court protection.”

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Read full Wall Street Journal article here

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