The Eurozone crisis is making a bit of a comeback thanks to Greece's upcoming elections, but if you want a good sense of what a ridiculous situation the continent has found itself in, the chart below from the investment firm M&G is a great place to start.
Basically German bonds (and not just the short-term ones) are offering negative interest rates — investors are paying the German government to hold their euros for them:
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Why would anyone buy a bond with a negative interest rate? Basically fear. You could lend money to the American government and get a higher interest rate, but people think the dollar will decline relative to the euro. Or you could lend money to the Italian government and get a higher interest rate with currency security, but people think Italy is more likely to default than Germany. So a critical mass of investors is willing to take a guaranteed loss on German debt rather than risk a bigger loss elsewhere.
M&G's view is that this makes it fiscally irresponsible for Germany to run a budget surplus. And the logic is hard to argue. Germany's budget surplus is modest, but it seems perverse at a time when the global financial community is paying the German government to act as a safe haven.
German leaders should either think of some useful things to do with the money (surely there are potholes to fill, water pipes to repair, or old buses to upgrade) or give their people a tax cut. Right now Germans pay a hefty 19 percent sales tax on almost everything, with a lower 7 percent rate on a few key goods. Either of those could be cut and then hiked up at some future time when the borrowing situation is less favorable.
