One of the reasons that Conservatives argue against fiscal stimulus in the form of more government spending is that they say that monetary policy consisting of easing credit and lowering interest rates will do the job. The fact that in the
U. S. and Europe
extremely low interest rates have not been effective doesn’t mean their logic
is flawed, because the position is not based on logic.
the flight of funds to safety has now resulted in two year debt issued by
the German government reaching an interest
rate of just about zero.
Germany sold €4.5bn of two-year government bonds at a record low yield of 0.07 per cent, underscoring the strong demand for safer assets amid fears that Greece could be forced out of the eurozone.
The German Bundesbank said the two-year “Schatz”, which was sold with a zero-coupon for the first time, received bids for €7.7bn, compared to a maximum sales target of €5bn.
The demand for German debt is the result of investors drawn by the need for safety above all else. But the results in
tell a much darker story. They tell that
Germany can borrow money for
essentially zero interest, but that the country is unwilling to invest in Europe and to stimulate the European economy away from
austerity and towards growth.
Ultimately the German economy itself will suffer, because it is export driven and when
customers suffer economic woes they are unable to buy German goods. Germany will learn this lesson the