Germany's bond interest rates dropped in September, October in spite of Eurozone crisis. Source 3.
Germany has always been seen as a stable investment. It is currently the largest economy in Europe, and, despite the Eurozone crisis, remains buoyant and prosperous. Germany’s unemployment level is at its lowest ever (5.8%[1]) since the Reunification in 1990[2]. And while the borrowing rates of other Eurozone nations have skyrocketed, German bond yields have fallen[3].
So it’s all been nice and peachy for the Germans, right? Well, not anymore.
Earlier this week, panic swept through the markets as Germany went through its worst bond sale yet. A bond is like an IOU for countries: an amount is borrowed from and paid back to the lender at a certain interest rate over a certain period of time. What does this mean? It means that Germany could not find enough investors to borrow money from—it means that the Eurozone has become so frightening that investors don’t even feel safe putting money into its safest economy. Out of €6 billion worth of bonds up for grabs, over a third was left untouched[4].
Although not directly damaging, the incident has been symbolic. It represents the next step in the contagion-like spread of the crisis. Germany so far has kept its neck above the water, but even its politicians fear that Germany is being “drawn into the debt swamp[5]”.
Eurozone nations boxed in blue. Source 7.
If Germany is so powerful, why can’t it just cut its ties to the Euro and save itself? Because its relationship with the currency is more co-dependent than it appears to be. Like China, it is so economically robust because of its undervalued currency. Much like how the Chinese government activelydeflates the value of the yuan, Germany weakens its currency by being a part of the Eurozone. The common currency “averages” the economic strengths and weaknesses of its member nations, allowing Germany to sell its goods for much less than what they would be worth under a national currency. This is basically why Germany accounts for around 9% of the world’s exports while having only 1% of the population[6].
To say nothing of the fact that 5 out of the 10 largest export markets for German goods are Eurozone nations[7]. Despite this, Germany has contributed nothing productive in solving the crisis. In light of all that the Euro has given Germany, maybe it’s time for Germany to give something back.
[1]http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=teilm020
[2]http://www.tradingeconomics.com/germany/unemployment-rate
[3]http://www.tradingeconomics.com/germany/government-bond-yield
[5]http://www.guardian.co.uk/business/blog/2011/nov/23/eurozone-crisis-eurobonds-recession-fears
[6]http://www.moneyweek.com/blog/why-germany-will-never-leave-the-eurozone-56025
[7]http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/…
