Why Germany deserves the privilege of low interest rates

Olaf Scholz at the informal EU summit in Prague

At the summit, the Chancellor received a lot of criticism for the traffic light’s protective shield.

(Photo: dpa)

It’s certainly not nice to be a bogeyman in a group that you like to belong to. This is what happened to Chancellor Olaf Scholz (SPD) when he was accused of “lack of solidarity” at the EU summit in Prague with regard to the federal government’s €200 billion defense shield.

The accusation is unfounded. Because the payments are spread over two years and are not unreasonable given the size of the German economy. Other countries, above all France, have already taken similar measures in the past.

Ultimately, the criticism is just an argument used to achieve the actual goal of a transfer and debt union. Scholz, whose SPD shares this goal, seems to be ready, as he was when finance minister, agree to joint EU debteven if this is officially yet denied becomes. Based on the rumor alone, interest rates on German government bonds rose while those in Italy fell.

Some economists see the debt union as giving up a “undeserved privilege“ of Germany. The alleged “privilege” lies in the lower interest rates that Germany has to pay on its national debt. Of the interest advantage of the state has an impact on the entire national economy and is quite significant.

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If we lose this advantage by entering into a debt union, all debtors in Germany will have to pay more for debt service. An increase of one percentage point would be conceivable, which corresponds to an additional burden of around 65 billion euros per year. In return, interest rates would fall, especially in Italy.

The author

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)

This makes it clear that this is another form of transfer between the euro countries, in addition to open and covert transfers that have already been introduced, such as through the reconstruction fund or the work of the European Central Bank.

But is this advantage really undeserved? Germany is the strongest economy in Europe with the lowest national debt and therefore pays less interest than others. This is not undeserved. One could argue that concerns about the stability of the euro and the sustainability of debt in other member countries are encouraging capital flight to Germany, which will further depress German interest rates. But even this is not undeserved, but the result of better politics.

In view of the demographic development, the de-industrialization caused by energy prices and the tendency of politicians to cover up the symptoms of the crisis with billions in debt instead of fighting the causes, Germany is threatened with losing the privilege anyway. Voluntarily sacrificing it beforehand will only accelerate its decline without even beginning to solve the euro’s problems.

More: Ego trip or smart course? Scholz defends “double boom” against criticism from EU partners.


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