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 Germany in Uproar as Negative Rates Threaten Saving Obsession

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PostSubject: Germany in Uproar as Negative Rates Threaten Saving Obsession   Germany in Uproar as Negative Rates Threaten Saving Obsession Icon_minitimeMon Aug 26, 2019 7:22 pm

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Germany in Uproar as Negative Rates Threaten Saving Obsession 5ca08750af5dcd303fbd37df694bc2b6

Most Germans live by the credo that saving is a virtue, but the European Central Bank’s negative interest rates risk making a mockery of the national obsession, prompting politicians to seek ways to insulate thrifty citizens and keep the burden on the country’s beleaguered banks.

Finance Minister Olaf Scholz says he’ll look into whether it’s possible to prevent German banks from charging most retail-banking clients for deposits, after such a measure was proposed by the leader of Bavaria. Lenders have rejected the idea, saying bans don’t ultimately help clients and could even destabilize financial markets.

Germany’s overcrowded banking industry has long contended with sub-par profitability, but after five years of negative rates, lenders are running out of ways to offset the hit to earnings. With the country gearing up for regional elections next month, the ECB is an easy target for a country known for its risk-averse attitude to money and its habit of hording savings in checking accounts. At 2.35 trillion euros ($2.6 trillion), no other country in the euro area has a larger pile of retail deposits.

Germany’s citizens also save far more of their disposable income than most other Europeans. The country’s savings rate was around 10% in 2017, almost twice the euro-area average, according to Deutsche Bank AG. On average, Germans held more than 40% of their financial assets in the form of bank deposits in 2018.

Negative rates, which mean deposits decline over time rather than increase, “would be bad for all savers,” said Juergen Dengel, a 40-year-old civil servant from Bonn. If negative rates were introduced at his bank, he would consider withdrawing his money and using it to build a home -- even if that meant going into debt.

“This is a total political football,” said Klaus Fleischer, a professor specializing in finance at the Munich University of Applied Sciences. “People love to hear someone standing up for them when their savings melt away.”

Not everyone’s in favor of outlawing deposit charges, though. “A ban on negative rates might be attractive for savers, but then we have to also think of how we’d support unprofitable but systemically-relevant banks,” said Ingrid Arndt-Brauer, a lawmaker for the Social Democratic Party, Angela Merkel’s junior coalition partner.
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