Germans pay back more than their borrowings

[Menydh]

Germans pay back more than their borrowings

Financial Times
June 20, 2005

German private households ignored the attractions of historically-low interest rates and for the first time paid back more money than they borrowed last year.

The net credit repayment reported by the Bundesbank, Germany's central bank, on Monday reflected the high level of consumer insecurity in Europe's largest economy. It contrasted with the strong credit growth in other European countries, which has boosted consumer spending.

“There is nowhere else where a country comes even close to such weak growth rates,” said Julian Callow, economist at Barclays Capital.

The depths of eurozone consumer insecurity explains the European Central Bank's recent focus on boosting confidence in the 12-country region, and the debate that is taking place within the central bank's governing council about a possible further cut in interest rates.

But the differences in borrowing behaviour among eurozone members adds to the ECB's headache in deciding a “one-size-fits-all” interest rate for the 12-country eurozone. So far, the ECB has held its main interest rate at 2.0 per cent for more than two years.

The Bundesbank figures showed German households paying back €600m ($738m) last year to banks and insurance companies, after having increased borrowing by €16.6bn in 2003. In 1999, private households had increased borrowings by more than €80bn. The Bundesbank attributed the “extraordinary development” last year to trends in consumer and commercial credit. There was little change in the nettake-up of property-related borrowings.

Jörg Krämer, economist at HVB in Munich, said the latest figures “reveal a lot of the scepticism about future economic growth”. In addition, Germans had been unsettled last year by the debate about labour market reforms by thecentre-left government of Gerhard Schröder, the chancellor, and the extensive cost-cutting activities of German companies.

The ECB argues that consumer behaviour in the eurozone is fundamentally different to that in the US or UK, where the propensity to save and take advantage of favourable financing costs is much greater.

Meanwhile, the Bundesbank survey showed the value of German private households' financial assets, excluding property, exceeding €4,000bn for the first time last year.

The savings rate savings as a share of disposable incomes also remained high, at 10.6 per cent, compared with 10.7 per cent in 2003.

The Bundesbank attributed the high propensity to save to high unemployment levels and efforts to build up savings for retirement. But the central bank noted large differences between income groups. Poorer households were maintaining spending patterns or even reducing savings, but among high income families the savings rate exceeded 20 percent.


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[Phlegethon]

This country is going to the dogs so quickly that one gets dizzy just from watching.

At least 9 million without a job, rampant outsourcing of jobs and money being transferred abroad.

[Agrippa]

Seriously, Germans saving too much money and invest too much into foreign countries...the consume in Germany is creeping...

[Phlegethon]

No money, no consumption.

[Nadvojvoda Janez Kranjski]

Originally Posted by Agrippa

Seriously, Germans saving too much money and invest too much into foreign countries...the consume in Germany is creeping...

Thereby buying other countries up. That's what Austrians do here.