Berlin The federal government fears that the economic situation of private households could deteriorate significantly in view of the high inflation. “The increased prices pose serious problems for many people,” said Federal Consumer Protection Minister Steffi Lemke (Greens) to the Handelsblatt.
Many citizens are already “considerably overindebted,” explained the minister, referring to the current figures from the Federal Statistical Office.
According to data published at the end of June, the financial burden of over-indebted people in Germany last year was 26 times the average monthly net income of all people who were looked after by debt counseling centers.
On average, those affected sat on a mountain of debt of 30,940 euros. This was offset by a monthly net income of 1189 euros. Debt experts and economists continue to see strong cost pressures, which place an excessive burden on low-income households in particular.
The consequence is “an increase in over-indebtedness and personal bankruptcies, since many people with low incomes have no choice but to finance their higher living costs through increasing debt,” said Marcel Fratzscher, President of the German Institute for Economic Research (DIW).
The head of Creditreform economic research, Patrik-Ludwig Hantzsch, agrees. “The ongoing financial stress is doubly affecting consumers,” he told Handelsblatt.
“The cost of living such as electricity, rent, groceries and other investments eat up a large part of income and savings.” As a result, many citizens have no chance of putting anything aside for harder times. “This will foreseeably lead to higher levels of debt and over-indebtedness.”
In the case of over-indebtedness, debtors cannot meet the claims of their creditors with either their assets or their expected income. As a private individual, you can file for personal bankruptcy in this situation.
Bundesbank President Nagel: “Overall, inflation has broadened”
The credit agency Crif expects up to 100,000 personal bankruptcies in the current year, after 96,321 last year. “Due to the further rising costs, a wave of debt is possible in Germany,” said Crif Managing Director Frank Schlein recently. “If the costs rise sharply, it will be difficult for people who have already been living at the subsistence level.” For many, the financial reserves were also used up after the Corona period, explained Schlein.
With a view to affected households, Fratzscher spoke of a “highly anti-social crisis”. Because low earners are confronted with a two to three times greater increase in the cost of living than people with high incomes. “The reason is that people on low incomes have to spend a much higher proportion of their monthly income on food and energy, which are products that have become much more expensive.”
Consumer prices have recently risen again after three declines in a row. In June, significantly more expensive food prices (plus 13.7 percent) weighed on consumers’ budgets, as data from the Federal Statistical Office show. Above all, the prices for dairy products (plus 22.3 percent) increased noticeably, followed by sugar, jam, honey and other confectionery (plus 19.4 percent).
Vegetables (plus 18.8 percent), fish, fish products and seafood (plus 18.5 percent) and bread and cereal products (plus 18.3 percent) also became noticeably more expensive within the year. On the other hand, edible fats and oils were 12.1 percent cheaper than a year earlier. Energy prices rose at a below-average rate of three percent.
In the opinion of Bundesbank President Joachim Nagel, however, it is too early to sound the all-clear. “Because inflation has broadened overall,” he said recently. The inflation rate in Germany will remain high for the time being.
The concerns of the citizens for the coming time are correspondingly great. This is shown by the current survey “Energy price crisis – is there enough money?” by Creditreform Boniversum, one of the leading providers of creditworthiness reports on private individuals in Germany.
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More than half of the 1001 Germans aged 18 to 79 surveyed in March (55 percent) assume that they will no longer be able to maintain their usual standard of living due to the current price increases. Many fear financial bottlenecks with electricity and heating costs (52 percent), when buying a house or apartment (51 percent) and with rent payments (36 percent).
Economists at odds over government intervention
The Working Group for Debt Counseling of Associations (AG SBV) is also assuming that money worries will increase. At the moment, the increased energy prices are not playing a role in many households because a number of energy suppliers, such as the Stadtwerke in Munich, do not charge electricity discounts, explained the deputy spokesman for the AG, Michael Weinhold. “This will put those households that do not have any reserves in particular in serious economic trouble.” An increase in consumer debt can therefore be expected.
Debt counseling services are also recording an increase in those seeking help. According to a recent survey by AG SBV, the demand for debt advice has increased in 65 percent of the advice centers compared to the beginning of 2022. The AG SBV includes the Federal Association of Workers’ Welfare, the German Caritas Association, the German Parity Welfare Association and the Diakonie.
Consumer Protection Minister Lemke advises people who can no longer pay all their bills and loans to seek advice and help at an early stage. “For them, the support of debt counseling centers is particularly important so that they don’t get caught in a debt spiral,” she said. The Green politician does not see any additional need for action.
Lemke referred to measures that had already been decided. A series of aid packages could have cushioned the rise in prices as a result of the Russian war of aggression in Ukraine. The Minister also mentioned the gas and electricity price brakes, which would relieve millions of households and companies in their electricity and heating bills.
In addition, there is better protection against energy locks. This is to prevent citizens from having their electricity cut off when they can no longer pay their bills.
From the point of view of DIW boss Fratzscher, the measures taken so far are not sufficient. “A significant increase in the minimum wage and citizen’s allowance, significantly more money for basic child security and direct financial transfers for citizens who are particularly hard hit are the right way, because the federal government should take it,” he said.
The Vice President of the Halle Institute for Economic Research (IWH), Oliver Holtemöller, sees no need for state intervention. As justification, he pointed to the savings rate of private households, which is still slightly higher than the pre-Corona situation. So far, the high savings during the pandemic have not been released, the economist explained.
>> Read here: Why private individuals fall into the debt trap
It can therefore be assumed that with falling inflation, private consumption will improve overall again, also because the labor market remains very stable. “From a macroeconomic perspective, no new, specific government aid measures appear necessary,” said Holtemöller.
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