Eurozone debt crisis makes Germany richer

Although the task at hand is not complete, Germany is now reaping what they have long strategically sowed since the inception of the Maastricht Treaty, creation of the EU bloc and respective Euro currency.

BERLIN: Germany has emerged as one of the biggest beneficiaries of the European financial crisis.

While other countries in 17-country group that use the euro have battled against investor fears that their economies are buckling under the pressure of too much debt, Germany has managed to save tens of billions of euros thanks to its reputation as a safe place for investments.

The bond markets have demanded that countries such as Italy and Spain pay prohibitively high borrowing costs rates to sell their debt amid worries over their sluggish economies and creaking government finances. Such high interest rates will burden these countries’ state coffers for years to come.

Financially healthy Germany, meanwhile, has secured billions of euros in debt at record low sometimes negative interest rates.

Germany has long been seen as a safe bet. It is Europe’s biggest economy and is the biggest single contributor to eurozone rescue funds, with a gross domestic product of e2.6 trillion ($3.17 trillion). The country’s economy has grown steadily in the past two years and, with quarter-on-quarter GDP growth of 0.5%, prevented the eurozone a whole from sliding into recession in this year’s first quarter.

The country recently sold billions of its 10-year-bonds with an interest rate or yield of around 1.5%. Last Wednesday, it auctioned e5 billion ($6.1 billion) in two-year treasury notes with an average yield of minus 0.06%.

In other words, investors are losing money and paying Germany for the privilege of safely parking their funds in the state coffers. Growing Germany offers the prospect of risk-free debt repayment, and other safe investments don’t offer great interest rates – the European Central Bank recently cut the rate on its overnight deposit facility to zero.

“The interest rates are unnaturally low at the moment,” Finance Minister Wolfgang Schaeuble acknowledged last month, adding they reflect the amount of “uncertainty in financial markets.”

The side-effect, however, is a gain for Schaeuble’s coffers.

Germany saves about e10 billion ($12.5 billion) this year alone thanks to the low interest rates,” said economist Jens Boysen-Hogrefe of Germany’s Kiel Institute for the World Economy.

By not having to pay higher interest rates on its debt, Germany has been given an opportunity to slash its budget deficit without having to drastically reduce its spending – or having to introduce any of the austerity measures it has recommended other European countries implement.

Full article: Eurozone debt crisis makes Germany richer (India Times)

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