Politeía Digest

Quis custodiet ipsos custodes?

Germany’s Savers Clash With Bailouts

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By Laura Stevens

BERLIN—To better understand Germans’ unease over subsidizing their southern neighbors, consider Berliner Niko Strogies. The 28-year-old mathematician has never taken out a loan, rarely uses his credit card, and saves about 10% of his paycheck every month. He recently bought a car with cash. “I’ve never bought anything without having the money for it,” Mr. Strogies says. His behavior, multiplied across the population of Germany, Europe’s biggest economy, helps explain the economic imbalances that have fed the euro zone’s crisis.

For years, German consumers’ reluctance to splurge has left German companies reliant on exports for growth. Other euro-zone economies, meanwhile, have had to live with sluggish exports to Germany, with its large economy. At the same time, the strong euro has made products from the peripheral countries less competitive outside the euro zone. On top of this, the weaker countries’ low savings rates are forcing a reliance on foreign investors to finance their deficits.

Now, frugal German taxpayers like Mr. Strogies are on the hook for bailing out some other European countries where borrowing has been a way of life. It’s one of the issues fueling tensions within the euro zone as Germany and France this week began the delicate task of trying to convince their major banks to voluntarily accept losses on their holdings of debt in Greece, which faces a cash crunch despite a bailout last year.

Germans’ deep-seated economic caution has roots in the ruinous wars and inflation of the last century. Many of today’s Germans are as frugal as ever, on average saving 11.5% of their incomes in 2010, according to the Organization for Economic Cooperation and Development. That compares with a savings rate of 5.7% in the U.S. last year.

In Ireland, one of the euro-zone countries that is getting a bailout, the average savings rate last year was 11.1%, near that of Germany—but the rate only rose after the shock of the global financial crisis, and follows years of much lower saving. Meanwhile, in Greece, residents on average spent 12% more than they earned in 2008, the latest year for which data is available from the OECD.

“Risk-averse Germans are concerned about the problematic economic behavior of some of their neighboring countries,” says Thorsten Hennig-Thurau, a professor at Münster University, who studies consumer habits. That, he says, explains many Germans’ growing nostalgia for their beloved former national currency, the Deutsche mark.

Although there are some signs that Germany’s improving labor market could boost consumer spending, economists say German households aren’t about to become free-spending drivers of Europe’s growth.

Germans typically invest their savings conservatively too, preferring savings-bank deposits that offer low interest rates to higher-yielding but riskier investments such as stocks. Read more in The Wall Street Journal.

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Written by Theophyle

June 27, 2011 at 8:36 am

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