Germany saved €100bn from Europe's debt crisis – think tank

Fall in borrowing costs far outweigh costs of crisis to economy, says Leibniz institute

German chancellor Angela Merkel and finance minister Wolfgang Schaüble. Investors have fled instability in the euro zone for the safety of German bonds since 2010, pushing down interest rates on those bonds. Photograph: Odd Andersen/AFP/Getty Images

German chancellor Angela Merkel and finance minister Wolfgang Schaüble. Investors have fled instability in the euro zone for the safety of German bonds since 2010, pushing down interest rates on those bonds. Photograph: Odd Andersen/AFP/Getty Images

 

Germany has saved €100 billion since 2010 because its borrowing costs have fallen during Europe’s debt crisis – savings that outweigh the cost of the crisis to the German economy, an economic think tank has reported.

Investors have fled instability in the euro zone for the safety of German bonds since 2010, pushing down interest rates on those bonds. Paying less interest has helped the government save more than 3 per cent of gross domestic product, the Halle-based Leibniz institute for economic research said.

The institute created a model of a fictitious “normal” situation, without the crisis, to establish what German interest rates would have been, based on inflation and slack in the economy.

The report observed a close connection between political flashpoints in the euro zone debt crisis and fluctuations in the interest rate on German government bonds.

Interest on German government bonds fell sharply when markets saw bad news out of Greece, such as Greek prime minister Alexis Tsipras’s decision in late June to hold a referendum on reforms demanded by its creditors. Similarly, rates rose on good news from Greece.

The total savings from this pattern since 2010, an estimated €100 billion, far outweigh the costs of the euro zone crisis to the German economy, even if Greece were to prove completely unable service its debts, the institute said.

Government bonds in other countries – including France, the United States and the Netherlands – have also benefited in the same way from the crisis, the report suggested, but on a smaller scale. – (Reuters)