German gov't saves up to 100 billion euros in interest thanks to Greece debt crisis

[muriel_volestrangler]

Source: AFP

Germany has profited greatly from the Greek debt crisis as it was revealed on Monday that the German government has saved up to 100 billion euros ($109 billion) in interest since 2010.

In the study conducted by the Halle Institute fro Economic Research (IWH), it was revealed that Germany saved through lower interest payments on funds the government borrowed amid investor "flights to safety."

"These savings exceed the costs of the crisis -- even if Greece were to default on its entire debt," said the private, non-profit Leibniz Institute of Economic Research in its paper.
...
"Every time financial markets faced negative news on Greece in recent years, interest rates on German government bonds fell, and every time there was good news, they rose."


Read more: http://www.dailysabah.com/economy/2015/08/10/german-govt-saves-up-to-100-billion-euros-in-interest-thanks-to-greece-debt-crisis

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http://www.bbc.co.uk/news/world-europe-33845836

This note shows that the German public sector balance benefited significantly from the
European/Greek debt crisis, because of lower interest payments on public sector debt. This is due to
two effects: One, in crisis times investors disproportionately seek out safe investments (“flight to
safety”), bidding down the returns on safe-haven assets. We show that German bunds strongly
benefited from this effect during the Greek debt crisis. Second, while the European Central Bank
(ECB) monetary policy stance was quite close to an “optimal” monetary policy stance for Germany
from 1999 to 2007, during the crisis monetary policy was too accommodating from a German
perspective, due to the emerging disparities across the Euro area. As a result of these two effects, our
calculations suggest that the German sovereign saved more than 100 billion Euros in interest expenses
between 2010 and mid-2015. That is, Germany benefited from the Greek crisis even in case that
Greece defaults on all its debt (a total of 90 billions) owed to the German government via diverse
channels (European Stability Mechanism [ESM], International Monetary Fund [IMF], or directly).

http://www.iwh-halle.de/d/publik/iwhonline/io_2015-07.pdf

[Psephos]

1. German bonds are lower-risk, therefore lower-interest.

Economics 101. You don't have to pay as much interest if your bonds aren't seen as a crapshoot at the casino.

Whatever Germany is doing to further perceptions of its bonds as safer, perhaps other countries should do as well.

[Travis_0004]

2. Agreed1

Article is pretty stupid.

Of course most investors would rather have German bonds than Greek bonds. Because more people want them, German bonds interest rates fall, and Greek interest rates rise.

This is high school level economics, not exactly groundbreaking.

[muriel_volestrangler]

4. You mean tie weaker nations to their currency, benefit from that holding down

the shared currency, but refuse to make any transfers when the other countries run into problems because they cannot devalue relative to the strong country?

Yeah, brilliant idea, everyone should find a weak country to profit off. Really progressive idea, that ...

[Psephos]

6. If I had meant that, I would have said that. n/t

[PosterChild]

7. Just about every nickel owed,..

... in taxes by the 80 million German citizens is paid in full to the government, while the 10 million Greeks barely pay a nickel each. Why should the German majority pay taxes to subsidize the Greek minority who pay none?

http://www.washingtonpost.com/news/wonkblog/wp/2015/07/03/why-greece-and-germany-just-dont-get-along-in-15-charts/

[Igel]

3. Well, yes.

But I'm not sure what inference we're to draw.

Why?

Because this parallels a spate of similar articles from 2009-2011 in the US. Part of the budget deficit reduction results from rolling over high-interest T-bills to lower-interest notes. Without financing the increased deficit from TARP, the stimulus, and the increased baseline budget from the second half of 2008/09 at low interest rates the deficit would be higher and stay higher.

The zero-interest rate level that the Fed instituted helped the federal government borrow cheaply for the same reason that the Greek fiasco helped Germany.

But I'm not sure what inference we're to draw from those articles--except that some of the reduced deficit is from lucky misfortune, not planning or acumen.

[muriel_volestrangler]

5. "monetary policy was too accommodating from a German perspective"

That's the difference. Germany got just what it wanted during the early part of the Euro, when the other members were expanding fast, and buying German goods, but that didn't strengthen the German currency relative to them (as it would have if there had been trade in different currencies), because it was all in Euros. That meant the German prices stayed competitive, and their exports stayed high.

When the shit hit the fan in 2008, the Eurozone policy was run mainly for the benefit of Germany, not the struggling countries, which would have liked to have devalued more than they could (which would have made their exports more competitive, helping employment). So they got screwed, and Germany refused to help them out with fiscal transfers (which are what happened in the USA, from the states doing better to those worst hit, like Nevada). But the German government did really well, because it could borrow really cheaply, as a result of the Greek crisis that it refused to help with.

I hope Paul Krugman will comment; I'm sure he can explain it better.