The Germans, Conviction Savers

One of the candidates to replace Merkel proposed fiscally incentivising investment in stocks, as a complement to the public pension. The idea got little support in a country with a savings rate of 10% but an enormous aversion to risk, where variable income seems reserved for the highest incomes.

German is a country of savers: its citizens save 10.6% of disposable income after satisfying their consumption needs, according to OECD data, compared to Spain (4%) and Italy (o.7%), less prosperous countries, and other more prosperous countries like the UK (very low rate) or the US (4.1%).

There is an old practice: keeping savings in bundles of central bank notes. It is still common in Germany. Its citizens value the note in the hand, such that – warning to travellers – before entering small or medium German establishments, the travelling trusting in his collection of credit cards should check whether any of them will be accepted.

The German citizen’s particular sensitivity about personal data probably explains this devotion to using methods of payment or saving which leave no trace. It is curious to observe a small debate which reappears every year when the German media publish the updated number of cash machines available in the country. The number is slowly reducing, but it never fails to stir up many readers, including many analysts who should know better: all of them believe that the published data are part of an occult programme of the banking sector which is seeking an end to paper money. It is more likely to be the tendency of banks to rationalise the number of cash machines and so reduce their operating costs. But the limited extent to which the citizens of an advanced country recognise that the necessary manipulation of paper money and maintaining a network of cash machines generate costs that banks are trying to rationalise is surprising.

Saving with caution

It must be a tough job for salesman of the Anglo-Saxon type when they try to convince German citizens – educated professionals, many with international experience and knowledge of economics – of the attractions of the whole range of funds investing in assets in whatever country, and discover that many people they are talking to live in a world of simple local investment: bank deposits, or in accounts associated with packets of Bunds (German public debt), or in some official pension plan or directly in contributions to one of the solid German life insurance companies. It is likely that the conversation is not even going to get to “shares”.

A recent episode in German politics illustrates the lack of confidence provoked by a simple mention of possible investment in stocks. Towards the end of 2018 Chancellor Merkel announced her departure from the leadership of her party CDU, and the process to elect her successor immediately began. As expected, the first candidate was a well known political figure in the Saar, Annegret Kramp-Karrenbauer, whom the Chancellor has called months before cover a position of confidence. Another candidate, ambitious but with limited support, was the Minister of Health, Jens Spahn, and a third candidate was an old Christian Democrat politician, Friedrich Merz, who had been out of active politics, but with ample financial experience in the private sector, and an economic and pro-European baggage which justified the support for his candidature from the business world and prominent CDU politicians like Oettinger and Schäuble.

Candidate Merx entered the short electoral campaign willing to defend very simple ideas. In an interview with the newspaper Welt am Sonntag, she dealt directly with the issue of public pensions: the foreseeable insufficiency of public resources to dealing with an ageing German population, and the need for citizens to constitute a parallel source of income through the purchase of shares. The investment in shares in Germany seems to be limited to those with high incomes, in such a way that the federal budget would have to offer some fiscal incentive to savers. The proposal received immediate support from “enlightened” Germany: “Merz is right” (FAZ, 4 December 2018). The liberal party FDP signed up. And the association of investment funds linked it immediately to its own proposal to adapt for Germany the US savings plan 401 (K). The idea would be to lighten the current burden on public resources to finance around 75% of the cost of pensions: significantly more than in the US (52%), the UK (42%) or the Netherlands (30%).

The secretary general of the Social Democrat Party, a member of the current coalition government, responded aggressively, comparing the proposal for fiscal support to “a favour for the rich” and, above all, for Merz’s colleagues in Blackrock, the well-known international investment where she worked for a while. The left-wing party Die Linke reacted in similar terms. And the workers association of the CDU itself argued that the fiscal stimuli should be used to improve state pensions and not benefit capital investors: as is marginal stimuli were comparable to capital contributions.

Germany doesn’t seem destined to become a country of “popular” shareholding. Its public opinion has reacted with indignant lamentation, for several years, to the ECB´s expansionary monetary policy and the consequent very low interest rates. The criticism of the ECB and its president has been persistent, not because of differences over the interpretation of the eurozone as a whole and the adequate monetary policy, but as a simple reaction to the erosion of returns from purely banking financial assets.

About the Author

Luis Marti
Luis Martí is Commercial Technician and State Economist. He was executive director at the International Monetary Fund and World Bank appointed by Spain, and deputy president of the European Investment Bank.