Germans need to wake up to the truth about who’s subsidising who in Europe

German taxpayers like to think they are financing the lifestyles of their feckless southern cousins. But the truth is rather different, says Merryn Somerset Webb.


Angela Merkel and Italian PM Matteo Renzi Germany is making a mint from Italian debt

The letters page of the FT is often pretty interesting. Today's is better than most. Several of the submissions are well worth a read (John Griffiths on the scandal of corporate remuneration, for example) but the most interesting comes from Olaf Dreyer of Hamburg.

We've written here before that one of the reasons we assume the eurozone will hold together for longer than seems possible today is that its main beneficiary is Germany. That's because the euro is a significantly weaker currency than a standalone German currency would be, something that has been a huge driver of Germany's recent export success.

But Dreyer notes that Germany has benefited in several other ways too.

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The most obvious point to make is that "because Germany is perceived as safe, the interest rates on German bonds have reached historic lows". So servicing German debt (yes Germany does have debt to the tune of well over 70% of GDP) is "vastly cheaper than it used to be."

Less obvious is how much money Germany has made out of ECB bond-buying. In the first part of this, the ECB bought up €200bn of southern European sovereign bonds, around half of which came from Italy. There has been no default on these bonds and the average interest rate on them has been around 6%.

The result? "Via the detour of the ECB, the German taxpayer received €2bn from Italy alone."

You might think that the knowledge of these vast advantages resulting directly from the existence of very weak states in the eurozone would make the German taxpayer want to do all he can to keep those states happy perhaps meeting Greece half way on debt renegotiation.

You'd be wrong. The problem, says Dreyer, is that "the German press is mute on this point" any discussion of it is met with "disbelief".

When I met with Nobel Prize winning economist Robert Shiller earlier this week, he pointed out that all economics is about the stories people believe: as long as the Germans believe they are paying for Europe rather than being paid by Europe, compromises are going to be tough to find.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.