The current chancellor relied heavily on short-term debt during his time as finance minister.
(Photo: dpa)
It is not new that politicians use all sorts of tricks to conceal the true development of public finances. “Special funds” that are in fact “special debts”, hidden liabilities, for example for pensions for the constantly growing number of civil servants – none of this is counted as part of the national debt.
But that’s not all. The finance ministers are also creative when it comes to beautifying the current budget. For example, government bonds were given a promise of interest above the market level in order to be able to sell them to investors with a premium. Investors give the federal government more money when they take out debt than they get back from it in the end.
In 2020, the federal government took in twelve billion euros from the bond sale in this way, in the ten years before that it was only a total of 31 billion euros. While the additional income from the artificially expensive bonds ends up in the federal budget immediately, the state pays higher interest during the term of these bonds. Economically nothing more than additional debt.
At the same time, today’s Chancellor Olaf Scholz (SPD), as Minister of Finance, relied primarily on short-term debt. In 2017, around 35 percent of the new government debt with a term of 10 years and more was issued, the proportion halved by 2021.
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The inevitable consequence: the rise in interest rates on the capital market has a direct negative impact on the budget. Other industrialized countries were smarter and since 2009 – the start of the low-interest phase – have increased the average term significantly, thus securing the low interest rates.
Daniel Stelter is the founder of the discussion forum beyond the obvious, which specializes in strategy and macroeconomics, as well as a management consultant and author. Every Sunday his podcast goes online at www.think-bto.com.
(Photo: Robert Recker/ Berlin)
Interest rates on German government bonds are now threatening to rise more sharply than anywhere else. On the one hand, it is becoming obvious that war and sanctions are hitting the German economy particularly hard.
On the other hand, the ECB has announced that it will take action against the supposed “fragmentation of the euro zone”, which means nothing other than that it wants to lower the interest rates of countries such as Italy that are considered less creditworthy. In return, it would buy fewer German bonds or even reduce the portfolio, which would cause interest rates in Germany to rise.
>>Read here: Dispute over the budget: Ministries are demanding an additional almost 100 billion euros from Lindner
Part of the government bonds are issued jointly and later serviced jointly with interest. Because the proceeds from the sale of the bonds are distributed across the eurozone, countries like Italy would get that money cheaper thanks to higher shared credit ratings.
In addition, as part of the EU’s reconstruction fund, bonds are issued jointly and later jointly serviced with interest, and the proceeds from the sale are distributed in the euro zone. As a result, countries like Italy get this money cheaper with a narrower interest rate differential thanks to higher shared creditworthiness.
Therein lies a great risk: If we make Germany’s still relatively good balance sheet available as security for EU debt, this will depress German creditworthiness and thus lead to higher interest rates for the German state.
Apart from the fact that our politicians should resolutely oppose such a massive transfer of wealth within the EU, it is high time to make German public debt more sustainable. Short-term optimization may increase the spending headroom in a year’s time, but it costs us dearly.
More: “Effective, but also proportionate” – This is the status of the discussion about the new instrument of the ECB