The federal budget as a perpetual motion machine?
(Photo: imago images/Gerold Rebsch)
The negative interest rates are finally coming to an end. The yield on ten-year Bunds has risen above zero percent for the first time since May 2019. This is initially only a small glimmer of hope – no more, but also no less. If interest rates return to normal in the long term, that would initially be good news for savers. Despite the stock market hype, Germans like to put their money in savings accounts.
The turnaround in interest rates is necessary in view of rising inflation rates. Finance ministers in Europe will be watching this development closely. Because the high national debt could quickly become an unbearable burden. In this respect, it is correct that the German finance minister recently declared in Brussels that he was a friendly hawk on financial issues and that he called on his cabinet colleagues to be frugal. His two predecessors, Wolfgang Schäuble and Olaf Scholz, rarely looked at the expenditure side. Schäuble has handed down the bon mot that even a relative reduction in the additional expenditure is considered a savings contribution in Berlin circles.
Everyone who has always said that debt is not a problem given the cheap money is becoming quieter. Not without reason. They were just as wrong with their inflation expectations as they were with their forecast that the federal budget would be a perpetuum mobile that finances itself with virtually no friction. The magicians of Modern Monetary Theory are about to be disenchanted.
Wealth and woe for financial stability
What does the federal government have to do? He has to invest. The two major tasks, climate change and digitization, require private and public investments. That is why savings have to be made elsewhere, otherwise the burden of debt will eventually become unsustainable. That may not apply directly to Germany. But for some countries in southern Europe, every percentage point can make the difference between the weal and woe of fiscal solidity.
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The effects of a possible turnaround in interest rates on companies are likely to vary. Anyone who hasn’t succumbed to the temptation to borrow up to the roof can sleep soundly. These entrepreneurs do not have to run to the bank and frantically renegotiate their interest rates. The situation is different for those who have plunged into financial adventures in the interest-free world. Suddenly they couldn’t count anymore. There has been a lot of discussion about zombie companies lately. A longer-term positive interest rate will quickly show how large the number of these undead really is.
More on this: The great nervousness before the turnaround in interest rates