DThanks to negative interest rates, the federal government pocketed billions in debt. When issuing federal securities to finance the budget, including special assets, “payments of around 4.251 billion euros were received” from January to August. This emerges from a letter from Finance State Secretary Sarah Ryglewski to the Reuters news agency on Monday in response to a request from the Bundestag member Fabio De Masi of the Left Party.
“German government bonds are so popular that buyers give us money,” said De Masi. The billions are due to the negative interest rates on the capital market. Investors give the federal government more money when they borrow than they get back in the end. The finance agency responsible for debt management allocated federal securities worth more than 275 billion euros to investors by the end of August. The average return on issue was minus 0.55 percent. Nevertheless, the auctions were 1.72 times oversubscribed.
Record volume of debt
“The federal government could have sold even more bonds in the auctions. Because on average there were significantly more bids from the banks than bonds sold, ”explained De Masi. For him, this is a sign that Germany can grow out of debt in the long term without any problems. “If it goes back to the debt brake too quickly, there is a risk of cold withdrawal for the economy, public investment and the welfare state,” explained De Masi. A return to the credit limit of the debt brake would be “economic madness.” “The federal government even earns money with loans, and we are facing the greatest restructuring in industrial history through climate change and digitization,” emphasized De Masi.
Overall, the finance agency wants to borrow the record volume of more than 480 billion euros from investors this year. Finance Minister Olaf Scholz writes deep red numbers because of the high costs in the fight against the consequences of the Corona crisis. In April, the Bundestag passed the supplementary budget for 2021 with a record new debt of 240 billion euros. Not only this amount has to be covered by new debts, but also the refinancing of old debts.
The federal government is very popular with investors, as its creditworthiness is given the top rating of “AAA” by major rating agencies and the repayment is therefore considered to be very secure. In addition, there is a huge market for trading these papers, which is why federal securities for pension funds, asset managers and other investors enjoy almost cash status. In addition, the European Central Bank (ECB) acts on a large scale as a buyer of securities. This increases demand, which in turn depresses returns.
The largest creditor of the German state is the Bundesbank, which purchases federal bonds on behalf of the ECB. According to estimates by the finance agency, it is likely to hold just under a third of federal bonds. Of this, 1.56 trillion euros are in circulation.