Germany can borrow money for less than nothing right now

The Eurozone crisis is making a bit of a comeback thanks to the upcoming elections in Greece, but if you want to get a good idea of ​​the ridiculous situation the continent has found itself in, the chart below from the investment firm M&G is a great place to start.

Basically, German bonds (and not just short-term ones) are offering negative interest rates — investors pay the German government to keep their euros for them:

Why would someone buy a bond with a negative interest rate? Especially fear. You could lend money to the US government and get a higher interest rate, but people think the dollar will fall against the euro. Or you could lend money to the Italian government and get a higher interest rate with monetary security, but people think Italy is more likely to default than Germany. Thus, a critical mass of investors is willing to accept a guaranteed loss on German debt rather than risk a larger loss elsewhere.

M&G’s view is that it makes it fiscally irresponsible for Germany to run a budget surplus. And the logic is hard to argue. Germany’s budget surplus is modestbut it seems perverse at a time when the global financial community is paying the German government to act as a safe haven.

German leaders should either think of useful things to do with the money (surely there are potholes to fill, water pipes to repair or old buses to modernize) or grant their people a tax reduction. Currently, Germans pay a hefty 19% sales tax on almost everything, with a lower rate of 7% on a few key products. Either of these could be reduced and then increased later when the borrowing situation is less favourable.

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