Eurozone Crisis Saved Germany €80bn in Interest Payments

By: EW News Desk Team   Date: 13 June 2013

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13 June 2013

The German government has saved 80 billion euros ($107 billion) in interest payments since the start of the financial crisis because interest rates for the country’s bonds are so low, said the Institute for the World Economy, a German think tank and economic research centre.

While other countries in the 17-member euro area have battled against investor fears that their economies may buckle under the weight of rising debt costs, Germany has managed to save billions of euros thanks to its reputation as a safe haven for investments.

Interest payments for Europe’s largest economy were about 10 billion euros lower last year than they would have been under a “benchmark scenario” that uses average yields in the decade before the crisis, said the Kiel-based Institute for the World Economy.

Summing up all the gains that are due to lower interest rates for federal government bonds and bills issued between 2009 and 2013, gives the sizable figure of roughly 80 billion euros.

“The decline of bond yields is mainly driven by the low business cycle dynamics in the euro area and the interest rate policy of the European Central Bank,” said IfW economist Jens Boysen-Hogrefe.

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Some analysts point out that the savings give Berlin extra leeway for growth-friendly spending or reducing its debt burden while other countries in the eurozone struggle to stay afloat.

“From a European perspective, it might be argued that these remarkable one-time effects are benefits that the German government has experienced due to the debt crisis and that it would be reasonable to spend this amount supporting those countries in the euro area that are most affected by the debt crisis,” he said.

However, other countries like France are also benefiting from low interest rates and the “safe haven effect is only a fractional amount and is comparatively low given the financial needs of distressed countries.”

“Benefits due to low government bond yields should not be the basis to calculate the commitment Germany is willing to make in the debt crisis,” he added.

German officials have admitted that interest rates are “unnaturally low at the moment” but German finance minister Wolfgang Schaeuble insists that Germany does not have to “apologise that the trust in the Federal Republic of Germany is high in the financial markets.”

Related: Did Germany Force The Eurozone Into The Debt Crisis?: Michael Pettis

Last week, German Chancellor Angela Merkel said interest rates will be able to rise to levels better for savers once the European Union has pushed through structural reforms and the trust in its banks is restored.

"That means: order in the European banking system, where we have already taken a lot of steps but still need to do more, plus real structural improvements of the European economic situation. Then interest rates can increase again," she said.

"Then we will get an interest rate that is better for savers than the one we have today," Merkel told a meeting of family-owned German firms, a day after the European Central Bank kept its main interest rate on hold at a record low 0.5 percent.

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