I have long been mulling over how much money the German government has actually saved as a result of the Greek/Eurozone crisis. It has been clear that crisis-driven capital inflows into Germany have led to higher demand for government bonds. As a result prices went up and yields down. If you manage a debt stock of about 75% of GDP it seems clear that the continuous roll-over of parts of that stock and the issuance of new debt will be conducted under very favourable circumstances.
Well, now we finally have a figure. According to calculations of the reputable Leibniz Institute for Economic Research in Halle (IWH) the German government has saved more than €100bn since 2010. The first paragraph of the study basically says it all:
This note shows that the German public sector balance benefited significantly from the European/Greek debt crisis, because of lower interest payments on public sector debt. This is due to two effects: One, in crisis times investors disproportionately seek out safe investments (“flight to safety”), bidding down the returns on safe-haven assets. We show that German bunds strongly benefited from this effect during the Greek debt crisis. Second, while the European Central Bank (ECB) monetary policy stance was quite close to an “optimal” monetary policy stance for Germany from 1999 to 2007, during the crisis monetary policy was too accommodating from a German perspective, due to the emerging disparities across the Euro area. As a result of these two effects, our calculations suggest that the German sovereign saved more than 100 billion Euros in interest expenses between 2010 and mid-2015. That is, Germany benefited from the Greek crisis even in case that Greece defaults on all its debt (a total of 90 billions) owed to the German government via diverse channels (European Stability Mechanism [ESM], International Monetary Fund [IMF], or directly).
Two things are very interesting to bear in mind in this context. First, as the study notes, even if there is a full write-down of all ‘rescue’ loans, the overall balance is still positive for the German government. And second, the misguided fiscal policy aim of a balanced budget (‘black zero”) has been achieved as a result of the Eurozone crisis rather than taking tough political decisions to live “within our means” (this will sound familiar to UK-based readers).
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In essence, this is yet another example that shows how much misunderstanding there is about who pays and who benefits from the multiple crisis we are currently living through.