"Not all Germans believe in God, but they all believe in the Bundesbank.” Former European Commission president Jacques Delors’s pithy assessment of the German attitude to monetary policy appears in a long list of quotations from the great and the good on the central bank’s website.
Alongside gems like “[the Bundesbank] is like cream, the more you whip it the harder it gets”, the central bank’s pride in its plaudits speaks to a healthy self-regard for its historic achievements in inflation targeting before the introduction of the euro, but also an institutional scepticism about the actions of the European Central Bank under Mario Draghi.
For German savers are in open revolt. Long known for their suspicion of debt and hefty saving, negative interest rates have eaten into returns and smack of the height of irresponsibility among Germany’s Schwabian housewives (the Teutonic archetype regularly praised by Angela Merkel for her frugality). German finance minister Wolfgang Schaeuble has even blamed Draghi’s ultra-loose policy for the rise of populist parties like the anti-euro AfD.
Yet while it’s easy to sympathise with savers trapped in a monetary union that needs to accommodate both crisis-hit Greece and prosperous Germany, the savings behaviour of Germans themselves isn’t quite as golden as it might appear. We’re regularly told to be more German – make more, consume less, take on less debt, and save more for the future – and this is unlikely to end now that Britain is on its way out of the European Union. But although Germany is obviously a rich and successful society, becoming too German in our savings attitudes could do more harm than good – particularly if the Bank of England acts on Mark Carney’s warnings and cuts interest rates, perhaps even into negative territory.
First, repeated surveys have found Germans to be excessively conservative when it comes to risk. Partly this is because German society is ageing rapidly, and older people are more likely to want the certainty of regular income payments than the prospect of capital growth.
But one of the consequences has been that, as government bond yields have collapsed below zero and deposit accounts have paid next to nothing, German savers have missed out on the 30 per cent rise in the Dax since 2011. In 2014, just 13 per cent of the German population owned shares, compared to 18 per cent of people in the UK and 49 per cent in the US. Bank deposits represented 37 per cent of the financial assets of German households in September 2015, according to BNP Paribas, compared to 23 per cent in the UK.
Second, extreme debt aversion (most Germans don’t own a credit card) does not mean the country’s households are wealthier than their British equivalents. Research by Patrick Artus of Natixis found UK total household wealth (including property and financial assets) to be about 600 per cent of nominal GDP in 2014, compared to just 400 per cent in Germany. Germany has not experienced abnormal increases in house prices relative to incomes, which will have affected the figures, but a dogmatic fear of debt does not automatically leave you wealthier.
None of this is an argument for ignoring the distortive impact of extreme monetary policy, particularly when it is inappropriate for the underlying economy. And the current volatile market environment in the wake of the Brexit vote no doubt calls for caution. But for all that it might appear to be home-spun common sense to be more German, it’s no model for Brits to follow as our monetary environment ironically becomes more European.