The National Debt Of Germany
Germany’s national debt includes the money raised by Germany’s federal government through the issuance of debt instruments.
Germany also includes the debts of its states and local government in the national debt figure. In fact, Germany refers to its national debts as “public debt.”
The German government was forced to bail out some banks during the financial crisis of 2008. The government still owns those banks and it includes their debts in the record of the public debt of the nation.
Which Debts Are Not Included In Germany’s National Debt?
The table below explains what is included in the national debt figure and what isn’t:
German Government Obligation Government Department Included in National Debt?
Government-issued bonds Bundesrepublik Deutschland ‒ Finanzagentur GmbH Yes
Short-term debt instruments Bundesrepublik Deutschland ‒ Finanzagentur GmbH Yes
State government debt Bundesrepublik Deutschland ‒ Finanzagentur GmbH Yes
Civil Service pension obligations All No
National Pension obligations Deutsche Rentenversicherung No
Rescued “bad banks” Federal Ministry of Finance Yes
National bank guarantee scheme Federal Ministry of Finance No
Accounts Payable (unpaid bills) All No
Other Important Facts About Germany’s National Debt
What facts should you know about Germany’s national debt?
- You could wrap $1 bills around the Earth 10,832 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 303,879 km, or 188,822 miles high.
- That's equivalent to 0.79 trips to the Moon.
Who Manages Germany’s National Debt?
The Federal Ministry of Finance, based in Berlin, is responsible for managing Germany’s national debt, including raising funds.
The Department of Financial Market Policy, which is also known as Directorate-General VII, is the Ministry department that is specifically in charge of overseeing all debt management issues on behalf of the government.
The German Finance Agency (Bundesrepublik Deutschland – Finanzagentur GmbH) is the government agency that issues bonds and other instruments to raise government funds through debt.
The Finance Agency is based in Frankfurt am Main, which is the financial center of Germany. The Agency also raises funds through debt instruments on behalf of all of the German states.
How Does The German Government Raise Loans?
The German Finance Agency issues bonds through an auction process. The institutions that are allowed to take part in those auctions must be registered in the Bund Issues Auction Group.
The dates for each auction are planned well in advance and are published at the end of the year in a calendar of events for the forthcoming year.
German government debt instruments fall into two categories:
- Short-term debt instruments
- Long-term debt instruments
Germany’s Short-Term Debt Instruments Explained
The short-term instruments are what are often called “Treasury bills.” In Germany, these are called “Bubills.” The official name for these instruments is Unverzinsliche Schatzanweisungen.
The German Finance Agency currently offers Bubills of six months duration. In the past, the Agency has written Bubills of three month, nine-month, and one-year durations.
Bubills do not pay any interest, but they are sold at a discount and redeemed at full face value.
Germany’s Long-Term Debt Instruments Explained
The long-term instruments at the disposal of the German Finance Agency are:
- Schätze (Bundesschatzanweisungen) – two-year Treasury notes
- Bobls (Bundesobligationen) – five-year Treasury notes
- iBobls (Inflationsindexierte Bundesobligationen) – five year inflation-linked Treasury notes
- Bunds (Bundesanleihen) – 10 and 30 year bonds
- iBunds (Inflationsindexierte Bundesanleihen) – 10, 15 and 30 year inflation-linked bonds
Currently, the Agency is only issuing Schätze, Bobls, and Bunds. These are all fixed interest instruments that pay interest once a year and are redeemed at face value.
What Are The Long-Term Debt Proportions?
The proportion of debt in each instrument type issued by the Agency varies year to year.
The current proportions of each type currently being issued by the German Finance Agency is ranked below in order of magnitude:
- 10 year Bunds
- 6 month Bubills
- 30 year Bunds
Who Else Does The GFA Raise Money For?
The German Finance Agency also raises funds for the state governments. The Agency has one type of instrument for state government debt, which is the Bund Länder Bond (Bund-Länder-Anleihe).
This type of bond has a maturity of seven years and pays interest annually. Each bond is jointly guaranteed by the Federal government and all of the states.
Is Germany’s National Debt Rising?
The Bundesbank, which is Germany’s central bank, reports that the country’s general government debt as a percentage of GDP was 59.8% at the end of 2019.
This is lower 2.1% lower than the previous year. In fact, the country’s debt has been decreasing since 2012:
Year Debt level (€ billion) % of GDP
2010 2,113 82.4
2011 2,149 79.8
2012 2,227 81.1
2013 2,213 78.7
2014 2,215 75.7
2015 2,185 72.1
2016 2,169 69.2
2017 2,119 65.3
2018 2,069 61.9
2019 2,053 59.8
A falling level of debt is a good indicator for investors. It shows that the government has the capacity to repay debt instruments when they fall due.
What Triggers The Decrease In Debt & Increase In Value?
Such an indicator generally increases the value of government bonds and enables the government to charge a lower rate of interest when they issue new bonds.
This is the case in Germany.
Under the Maastricht Treaty all EU government pledge to reduce their national debt to a debt to GDP ratio of 60%. Many countries ignore that obligation or try to delay the implementation of debt reduction.
Germany’s debt to GDP ratio of 82.4% in 2010 was the peak figure. Since then the German government has been striving to get to the 60% target and they have succeeded.
What Are The German Bond Interest Rates?
Government bonds generally pay a lower rate of interest than bonds offered by companies. The rate that each government changes is influenced by its reputation for debt management.
Germany has a very good reputation for responsible debt management and so bonds are seen as a very safe place to store money.
As a consequence of this reputation, investors will buy German bonds when there is more risk in other assets. This is called “a flight to safety.”
The variable reputation of governments across Europe gives bond investors the chance to switch instruments without having to exchange currency.
How Do Nations Like Germany Exchange Bonds?
When the world economy is going well and there aren’t any political issues in other European countries, bond investors will spread their risk by buying the bonds of several Euro nations, including Germany.
If a country shows some volatility, such as a disruptive government in Italy, or the lack of a clear government in Spain, investors will sell the bonds of those worrying countries and use the money to increase their holding in safe bonds, such as those of Germany.
This means that German government bonds are always in demand, but during times when demand becomes excessive, driving up the resale price of the bonds on the secondary market.
Recent History Of German Government Bonds: Why Did Prices Shoot Up?
From 2015 to early 2018, the demand for German government bonds was so great that investors were prepared to buy them at a price that exceeded their face value.
The price went so high that even taking into account the earnings expected from the interest on the bonds, investors were actually losing money by buying German government bonds.
However, the low risk of those bonds during turbulent times in other markets made the loss a price that investors were willing to pay in order to avoid the risk of losses that could be incurred on other government bonds, such as those of Greece or Italy.
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