Euro Crisis Will Help Germany Balance Its Budget

Spiegel
June 14, 2012

Low interest rates on German bonds are translating into billions in savings. Now economists have calculated that the country should be able to balance its budget by next year -- something that is likely to increase criticism of Germany's crisis management. Meanwhile, Chancellor Merkel has warned that Germany could be "overwhelmed" by efforts to solve the crisis.

The European sovereign debt crisis has plenty of losers, but arguably one clear winner: Germany. Demand for German bonds, seen as the safest haven in the euro zone, has pushed Berlin's borrowing costs so low that some investors are effectively paying Germany for the privilege of lending it money.

Now German economists have calculated that Germany could reach its cherished goal of a balanced budget by as early as next year, as a result of its bargain borrowing costs -- provided, that is, the euro crisis doesn't escalate.

According to calculations conducted for the Financial Times Deutschland by the private research company Kiel Economics, a spin-off of the respected Kiel Institute for the World Economy (IfW), Germany will save a total of around €15 billion ($19 billion) in 2011 and 2012 as a result of low interest rates on government bonds. Berlin will save at least €10 billion in 2012 alone, the economists calculate. "We are expecting a balanced budget in 2013," the IfW's Jens Boysen-Hogrefe told the Thursday edition of the newspaper.

The economic research institute RWI also foresees a balanced budget for Germany in 2013 in its latest economic report, published Wednesday. That prediction, however, is based on the assumption that the euro crisis does not escalate, which could leave Germany with costly liabilities -- for example, in the event that Greece leaves the euro zone.

Investor demand for German government bonds, perceived as a safe haven amid the burgeoning euro crisis, has pushed yields down to record lows. At an auction on Wednesday, Berlin issued 10-year bonds with an interest rate of just 1.52 percent. When adjusted for inflation, currently at 1.9 percent, the rate means that investors will actually lose money on their investment. In effect, they are paying Germany to keep their money safe.

The figures are likely to provide critics of Germany with more ammunition. Already many economists and politicians outside the country are calling on Berlin to do more to solve the debt crisis. The perception that Germany is benefiting financially from the crisis while imposing strict austerity measures on countries in southern Europe is unlikely to win many friends for Chancellor Angela Merkel, who is already highly unpopular in countries such as Greece.

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