While Chancellor Angela Merkel's focus on careful spending as a cure for the euro zone's debt problems has made her popular at home, German consumers are borrowing more to finance everything from furniture to cars. Germans, traditionally a nation of debt-averse savers, took out an average of 8,700 euros ($9,650) in loans last year - a rise of around 10 percent compared with 2013, according to Schufa, Germany's main credit bureau.
With borrowing expected rise again this year, that marks a significant shift in a country where the thrifty southwestern 'Swabian housewife' has been held up as a model and a strong dislike of borrowing is rooted in the language. 'Schuld', the word for debt, also means guilt. During the euro zone crisis, Merkel and her government have extolled the virtues of budget discipline over loading up on debt to finance stimulus, with her Finance Minister Wolfgang Schaeuble currently playing hardball over Greece's attempts to secure a third bailout in exchange for economic reforms.
That stance that has scored points with voters at home but raised hackles in other euro zone states, whose governments have throughout the crisis urged the citizens of Europe's richest country to help kick-start the region's recovery by spending more freely. Emboldened by the strong jobs market, rising wages and a more robust economic backdrop, German consumers are starting to do just that by buying more on credit as rock-bottom interest rates make it cheaper to borrow and reduce the incentive to save. "The economy is stable, steady incomes are giving people planning security and there are plenty of tempting offers at a time when people are very consumption-oriented and interest rates are low," said Michael-Burkhard Piorkowsky, professor of household and consumption economics at the University of Bonn. "All this means that taking on debt is in vogue."
While the number of new loans dropped slightly last year, the average amount people borrowed rose. For the first time, new instalment loans worth more than 10,000 euros overtook those worth less than 1,000 euros, Schufa data showed. Germans still have far less outstanding consumer credit per head than peers in Norway, Denmark and the United Kingdom, but they have far more left to pay off than the Italians, Spanish and Portuguese, a study by French bank Credit Agricole found. Hans-Werner Scherer, head of financial services firm EOS Group, said instalment loans, the overdraft facility on credit cards and current accounts, had become "socially acceptable". "Nowadays Germans differentiate between 'good' and 'bad' debt," he said. "Taking out debt to pay for cosmetic surgery, new clothes or jewellery is still frowned upon but taking out a loan to buy a house or pay for health treatment is accepted."
Comments
Comments are closed.