Germany earned €7 billion in negative interest rates this year

Germany's government has earned more than €7 billion this year from the issuance of government bonds with negative interest rates. That writes Reuters based on a document from the German Ministry of Finance. The average interest rate on all new bonds issued by the government through November was -0.56%, a historically low interest rate.

Interest rates on German government bonds are currently negative across all maturities. At the time of writing, investors are paying -0.58% on a 10-year loan and -0.17% on a 30-year term. During the corona crisis in March, this was even lower. Due to the extremely low interest rates, the German government expects to pay half as much interest on its total national debt this year than last year.

More debt, less interest

As a result of the support measures, the German government anticipates a budget deficit of 8%, which means that the national debt will increase further. Paradoxically, this actually leads to a decrease in interest charges. The explanation for these extremely low interest rates is the enormous demand for safe government bonds as safe collateral.

"Thanks to negative interest rates, the state earns money from issuing bonds. German government bonds are selling like hotcakes", said Fabio De Masi of the German Bundestag.

On top of that, the ECB is putting more and more government bonds on its balance sheet. Under the new PEPP Buyback program the central bank has already withdrawn more than €125 billion in so-called 'Bunds' from the market this year. The central bank puts these government bonds on its balance sheet in exchange for reserves, on which banks have to pay half a percent interest.

Pension funds and savers in trouble

Due to the ECB's extremely accommodative monetary policy, interest rate differentials between government bonds of different euro countries are narrowing. Countries such as Italy, Spain, Portugal and even Greece are now also borrowing at negative interest rates. In doing so, the central bank indirectly helps to finance budget deficits, at the expense of the returns of pension funds and savers. They lose purchasing power not only due to inflation, but also due to negative interest rates.

Interest rates on European government bonds further down

This contribution comes from Geotrendlines