Newly-issued German debt is selling like hot cake despite all the fearmongering. Many investors apparently believe that a bird in the hand is worth two in the bush, which may be more promising in terms of a yield, but owning them implies a higher risk.
In April, the German Ministry of Finance was again able to sell government bonds without the slightest problem, even though 5-year Bunds offered no interest payments at all for investors, and those with a 10-year maturity will earn them only a meagre 0.25%. Thirty-year debt was selling at 2.50% interest, which shows that the long-term prospects for the German economy are far from being viewed with growing concern. Clearly, all talk of a doomsday scenario for the German economy is fake news.
Germany is stable and fit to sustain a blow
What also needs to be said, however, is that long-term German debt being sold at such low prices betrays huge skepticism among investors that the world economy will continue to produce the kind of robust dynamism we’ve experienced in the past decade. In their opinion, the ugly specter of “secular stagnation” is rearing its head. If it becomes a reality, any investment that reaps little more than its face value now might still be more attractive than alternatives that are more likely to suffer losses in future.
Money managers looking to other countries and currencies for higher yield are facing an even bigger risk than those investing in Germany. In other words, Germany is still considered more stable and fit to sustain an economic downturn and financial market turbulence than the rest of the world — except maybe for a few, so-called safe-haven states like Switzerland and Norway.
Swiss economist Thomas Straubhaar
Apparently, financial markets are more relaxed in view of the presumed challenges facing Europe’s biggest economy, which the doomsayers of all stripes are presently painting onto the wall in stark colors. Germany’s woes (which no doubt exist) will multiply, they claim, as the country’s hitherto huge business success in the emerging markets of Asia, the Americas and Africa (which is also a fact) comes under pressure. Thereby, they simply extrapolate the present into the future to prove their case that problems only exist in Germany and nowhere else.
Nobody denies that many things in this country can be done in a much better way. It goes without saying that other countries are faster and more efficient when it comes to making decisions. Surely, there’s no reason for complacency at all, especially in view of the changes that digitization and big data require for the German economic model based on industrial mass production. Its automotive industry is facing the era of autonomous driving; infrastructure must be smarter and greener; artificial intelligence needs to be fully embraced to make it work.
Those challenges, however, have to be dealt with by all societies, all around the world. And it’s not yet decided what approach to the new technologies will eventually turn out to be the most successful. Will it be the one adopted by China’s authoritarian state capitalism with its monopoly on big data? Or that of America’s financial capitalism that gives huge private corporations the keys to technology’s future? Or any other approach?
Decline and doom look different
The empirical facts give rise to more optimism about people’s seemingly eternal wish that their children and grandchildren should be better off than they are. Doubts expressed in the German media about a better future have always been part of the public noise, nonetheless. But comparing the doomsaying outlooks and prophecies of decline with reality has unmasked them as fictional narratives that have always been far, far away from actual developments.
Take per capita income over the past decade as an example of the dramatic misconceptions circulating in German society. In the first 10 years of the millennium, German per capita income reached just about the average of all advanced economies. A decade later, we are 10% ahead of them all, with only the American economy being able to keep up the pace. Decline and doom certainly look different.
Moreover, there’s hardly any socioeconomic indicator where Germany is faring worse than 10 years ago. The population here lives better, longer and healthier. And a sober look at the facts of the past is enough to tell us that it’s always been optimism and confidence the have advanced mankind — not fake news and prophecies of doom.
Thomas Straubhaar was born in Switzerland and is currently professor of economics at the University of Hamburg, focusing on international economic relations. He was president of the Hamburg Archive of International Economics (HWWA) and head of the Hamburg Institute of International Economics (HWWI) from 1999 to 2014.
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