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2016-04-10

Why Germany do not like Zero interest rates

In many countries like Sweden and UK people tend to like low or zero interest rates because they have invested heavily in housing with borrowed money.

But in German most people rent their flats and have put their money in savings accounts or insurance.

That is the background for an interesting article in Der Spiegel.


- In hardly any other euro-zone country is the financial investment sector so dominated by savings accounts and insurance policies. 

It is mostly life/retirement insurance policies that are suffering. Insurance providers have primarily invested their customers' money in sovereign bonds. But returns are extremely low, in part because of the massive ECB purchases of such bonds.

The idea of pumping money directly into the economy, Draghi said, was a "very interesting concept," with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended. 

German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little.

A few weeks ago, Finance Minister Wolfgang Schäuble warned the ECB head that his ultra-loose monetary policies could "ultimately end in disaster." 

The fact that Schäuble said anything at all is rather surprising, as were the words he chose.

Mario Bothers: Germany Takes Aim at the European Central Bank
Der Spiegel 8 April 2016

ECB

Germany

Helicopter money

Moody’s said the “profitability and solvency” of the industry in Germany would come under further strain from the European Central Bank’s bond buying.
German life companies, which have estimated liabilities of more than €700bn, sell policies that offer annual guaranteed returns to policyholders, who use the products to save for retirement.

http://davidstockmanscontracorner.com/monetary-mayhem-how-zirp-is-zapping-life-insurance-margins/

Negative interest rates risk hitting consumer spending and undermining the economic growth they are intended to encourage, the head of the world’s largest asset management group has warned.

Larry Fink, chief executive of BlackRock, said that not enough attention was being given to the effect of negative rates on saving habits in a downbeat annual letter to his shareholders.

Mr Fink said that low rates were preventing savers from getting the returns they needed to prepare for retirement, so they were increasingly being forced to divert money from current spending into savings.

FT 10 April 2016


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