Das wasted Kapital: a tale of German inefficiency

January 14, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

German efficiency, much praised, doesn’t apply to finance. The country’s consumers are amongst the most eager savers in the world, but their returns are miserable because of excessive risk aversion and poor portfolio choices. In the decade to 2013, private households on average lost 15 percent of their inflation-adjusted wealth, data by Berlin-based think tank DIW shows.

Each year, the homeland of Karl Marx squirrels away around 170 billion euros or 9.5 percent of households’ disposable income. The savings rate is 50 percent above the euro area’s average and twice as high as in the United States, OECD data shows. Yet adjusted for inflation, Germans are earning a pitiful annual return of just 1.5 percent on their financial assets, according to Bundesbank data.

More than a fifth of assets sit in simple bank accounts, and bear little if any interest. Even in the 1990s, when nominal interest rates were high, real returns usually languished below 1 percent. Mutual funds and stocks, which on average yield real returns of 5 percent and 8 percent, are unpopular. Only 16 percent of Germany’s household financial assets are invested on the stock market, compared to 25 percent in 2000 before the dot-com bubble left investors burned.

Overseas investments are another sorry tale. Since 2006, the country suffered a net valuation loss of more than 20 percent of GDP, DIW data shows. Before the financial crisis, the country’s huge current account surplus drove German investors to buy structured U.S. subprime mortgages and other high-yielding assets that later become toxic.

Even Europe’s richest country cannot afford such waste. If returns on total household assets rose by a mere 1 percentage point, disposable income would rise by 80 billion euros, a Breakingviews calculation shows. If households were to spend all of it, private consumption would rise by a whopping 5 percent.

Changing the investment decisions of millions of households is easier said than done. Educating households on finance would help. But policymakers could do worse than offer tax breaks or other monetary incentives to get individual investors back into the stock market. That sounds like encouraging, very un-German speculation. It should be thought of instead as another kind of sensible and entirely Teutonic engineering.

2 comments

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Well well my friend. And what specific investment advice do you have for Ze Germans ? You cannot blame them for being overly conservative with their hard earned cash when in the past a lot of ordinary non professional so called investors lost a fortune – remember the huge advertising campaign when Deutsche Telekom came onto the stock market and was presented as THE stock for the ordinary citizen ? Remember how much money was lot subsequently? Not to mention the sale of Lehman certificates through such institutions as Frankfurter Sparkasse to pensioners who only just understood what a current account was … that sale took place even when the warning lights were on re Lehman …
Yes they are loosing money because of their conservatism but how much money have ordinary investors with on the one hand more appetite for risk but on the other hand not much more knowledge of their investments lost ? Look at recent events in China…look at events in the US where ordinary folk A) put all their money into ONE company’s stocks B) bought stocks ON CREDIT ?
The current interest rate environment leaves conservative investors very little choice…

Posted by realitycitizen | Report as abusive

The claimed returns from mutual funds are grossly exaggerated. I have a couple I now view as nothing more than science projects. I compare the breathless claims in the quarterly reports to what I really earn and laugh. I always earn less than the claimed returns. I would wager there are a lot of brokers who would dearly love to invest the Germans substantial savings in their preferred funds and thereafter “manage” these accounts for them that are driving articles like this one. The Germans are wise to say nein.

Posted by DesertTortoise | Report as abusive