The Germans would be 3 trillion euros richer if they had invested their money as wisely as the Canadians since 2007. An economist from Bonn does the math – and gives reasons.
Ka nation has ever invested as much wealth abroad as the German – but the returns achieved are meager in global comparison. What is mockingly circulating in the financial world as “stupid German money” was the subject of a lecture at the Munich Ifo Institute on Monday evening. The guest was the Bonn economist Moritz Schularick. As he did a few weeks ago in a guest article for the FAZ, Schularick spoke of the “billion-dollar export of capital”.
It is true that the accumulation of considerable claims against foreign countries associated with the sale of German export hits is historically normal. Globalization also contributes to the fact that Germany is now more closely connected with other countries. Nevertheless, capital exports have skyrocketed in the past 20 years, emphasized Schularick.
“The sums involved are substantial,” he said. In its prime in 1913, the foreign claims of the British Kingdom – an impressive 150 percent in relation to economic output – were well below the 250 percent that Germany currently has. Above all, however, the profitability of the claims is cause for concern. According to figures from the Bonn economist, German investors have been achieving nominal returns after taxes of less than 5 percent since 1975; only Finland is worse off in a comparison of industrialized countries.
In America and Great Britain, however, the average increase in value was more than double. France and Italy also have returns of 7 to 8 percent. A comparison shows what this means in concrete terms: If the Germans had recorded similar asset growth as the Canadians between 2009 and 2017, they would be more than 3 trillion euros richer today – in view of the national debt of 2 trillion euros, certainly none small chunk.
“We have a problem,” said Ifo boss Clemens Fuest. Something is going wrong. The reasons are complex. In historical considerations, Schularick referred to the return-reducing upward pressure to which the Deutsche Mark had previously been exposed. For the more recent development, however, the German reluctance to invest money in riskier forms of investment such as stocks is decisive.
In addition, two-thirds of German money goes to Europe and only around 12 percent to emerging and developing countries. This is doubly problematic: on the one hand, the foreign investments hardly fulfill a hedging function against economic and demographic risks, so losses in a local downturn cannot be compensated for with profits from dynamic, emerging markets.
On the other hand, the increase in value would also have been significantly higher with domestic investments. “In the last few years you would have preferred to invest your money in the Munich real estate market rather than on the Costa Brava,” said Schularick. Comments from the audience, according to which the German aversion to risk, for example for life insurers, is also connected to regulatory provisions, the economist was only able to refute to a limited extent.
This also applied to the criticism of the former Ifo boss Hans-Werner Sinn, who was also present. He emphasized that the low-interest claims from the ECB’s target system in the past decade had brought the Germans into the low three-digit billion range.