How does Germany make money

The federal government earns billions from debt - how does it work?

Earning money when taking on debt: This notion seems bizarre. In fact, the federal government made two billion euros. But how does it work?

Thanks to negative interest rates, the federal government pocketed billions in debt in the first quarter. The issue of bonds and other capital market instruments to finance the budget, including special assets, generated revenues of around two billion euros. This emerges from a letter from State Secretary of Finance Sarah Ryglewski to a request from the Bundestag member Fabio De Masi of the Left Party, which the Reuters news agency received on Thursday.

"This year too, the federal government is making a lot of money by getting into debt," said De Masi, adding, referring to the Federal Minister of Finance: "The ECB is doing its job and keeping interest rates low so that Olaf Scholz does not have any financing problems."

Anyone who wants to go back to the debt brake under these circumstances and put the ax to public investments or the welfare state is "an economic ghost driver". Germany could grow out of debt in the long term without any problems.

How Does Debt Making Money Work?

In addition to tax revenue, the state finances itself by issuing so-called government bonds, i.e. loans that investors can buy - and thus lend money to the federal government. Read here how government bonds work exactly and how you as an investor can benefit from them.

However, the interest rates on German government bonds are negative. That means: Investors give the federal government more money when they borrow than they get back in the end.

But where do the negative interest rates come from? The federal government is so popular with investors that its creditworthiness is rated "AAA" by all major rating agencies and the repayment is therefore considered to be very secure. "German government bonds are hot commodities on the capital market," said De Masi.

There is also a huge market for trading in these papers, which is why federal securities for pension funds, asset managers and other investors enjoy near-cash status. Investors are therefore prepared to pay on it instead of collecting interest.

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 federal government wants to collect almost half a trillion euros from investors

Overall, the finance agency, which is responsible for federal debt management, wants to collect more than 471 billion euros from investors this year. The main reason for this is the federal government's record new debt due to the enormous costs of the corona pandemic. In addition, old debts must be repaid.

Due to the low or even negative interest rates, interest expenditure fell to 6.4 billion euros last year, regardless of the record high new borrowing, the lowest value in decades.

Also due to the slight rise in interest rates, the federal government expects a trend reversal and is therefore increasing the item for expected interest expenditure for this year by 4.5 billion to 10.3 billion euros in its supplementary budget.

more on the subject

  • Subjects:
  • Economy,
  • Economy,
  • Government bonds,
  • Rating agencies,
  • Corona pandemic,
  • Debt brake,
  • Negative interest rates,
  • Creditworthiness,
  • European Central Bank,
  • Federal securities,
  • Sarah Ryglewski,
  • Finance agency