While the rest of Europe suffers through an ugly debt crisis, Germany’s government reckons it has profited handsomely from its relative economic strength. According to an analysis by Germany’s finance ministry, interest payments on its public debt will have worked out €41 billion ($55 billion) cheaper than budgeted for the period 2010 to 2014, because investors searching for safe havens have pushed down the country’s borrowing rates. The ministry also reckons that the costs to Germany of the crisis add up to only €599 million.
We imagine the target audience for that news is Germany’s electorate—which will have the chance to re-elect chancellor Angela Merkel next month—and not the embittered critics from the euro periphery, who have been saying much the same thing for the last few years. But does the math really work?
There’s no doubt Germany’s safe haven status, much like that of the United States, has allowed it to borrow more cheaply. But that probably doesn’t account for the broader costs of the crisis and the European recession—nor for what might have happened had Germany supported a more pro-growth Europe.
Consider growth. Forecasters expected 1.7% growth in 2013 but downgraded their projection to 0.7%, due in part to European woes; after the first half of the year, they cut the forecast again to 0.3%. The difference between the first forecast and the most recent one is some €50 billion. While that’s not all due to the euro crisis, it’s safe to say that sinking exports have cost Germany billions.
Then, of course, there’s the bailout of Greece. While European governments, individually and through the European Central Bank (ECB), own lots of the country’s debt, they haven’t taken losses yet. But they will probably have to write some of it off in the future, no matter how much Merkel’s government denies it ahead of the election.
For Germany to crow about how much money it’s saved on interest is especially ironic in light of its position on the rest of the continent’s interest rates. The Bundesbank led the opposition to easier money at the ECB as Europe entered its second recession three years. After lowering the rate 25 basis points in July of 2012, the ECB took no action until May of this year, when it lowered rates to 0.5%. For comparison, the US Federal Reserve has kept rates below 0.25% since 2009 and the Bank of England has been at 0.5% since 2009. A lower ECB rate would saved Germany money while easing the recession around the euro zone. Trumpeting its savings while calling for tightening elsewhere is a bit gauche.
Still, there’s no doubt that financial rescues can be lucrative—just look at the US TARP program, which aided banks, the auto industry and homeowners. Its costs have sunk from a $700 billion original estimate to $26 billion, or the nationalization of the United States’ big mortgage lenders. But a simple balance sheet misses the broader losses, social and economic, that came from the crisis.
One fact remains indisputable: the Greeks should file away this report for October’s Eurogroup meeting, when they are expected to ask for new loans in 2014.