Tuesday, January 10, 2012

Europe's Crisis Is Germany's Blessing

January 10, 2012

Its neighbors may be suffering, but the euro crisis has created conditions that actually benefit the German economy. Not only is the government enjoying the windfall of negative interest rates on bonds, but unemployment is down and exports are booming.

It's every debtor's dream. When asked for a loan, the bank not only agrees, but actually pays the borrower for their patronage. It sounds like a fairy tale, as though the laws of the market economy had been suspended. But on Monday it really happened.

The debtor in this case was the German government, which borrowed €3.9 billion ($5 billion) for the next six months at the unbelievable interest rate of -0.01 percent. Even the German Finance Agency was stunned. "This has never happened before," a spokesperson said.

The Finance Ministry should be pleased. In the last four years, they've had to shell out around 1.8 percent in interest for such bonds. But recently even interest rates on German bonds with longer maturities have decreased significantly. The federal government is saving a bundle.

The reason for the windfall? Amid the ongoing euro crisis, Germany is one of the few borrowers that are still regarded as a safe haven. Many investors would rather lend the government money at bargain-basement rates than risk losses.


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