DS Consulting, Munich
In the last few years the profile of Germany in the world has risen dramatically. Across Europe, people are learning German and planning to try to find work here. Governments, as in the UK, are looking at the Mittelstand, the German industrial base and the banking system to try to understand what the Germans have done right and how it can be emulated.
Angela Merkel
German Chancellor
Actually very little has changed here in the last 20 years and it always has been a fascinating place for those that the know it. So why is there suddenly so much interest from those who don’t? It certainly is not that the Germans have been marketing themselves better, that is really not a strong suit. And though their football is impressive that alone would not explain the enhanced status. I think it is the money.
For the first time it has become very clear to everyone where the cash is in Europe. Angela Merkel, unwillingly, has become the paymistress of the Eurozone and seems to have access to unlimited funds to bail out failing economies. The British look on, sometimes with Schadenfreude, as the German taxpayer is forced to subsidise Greek and Spanish profligacy. Nevertheless, this forced generosity has not broken the Bundesbank and people in the financial sector outside Germany are intrigued to see how this has been managed, suspecting some accounting sleight of hand to make it work.
The fact is that the Germans, like the Swiss, have loads of money. The Global Financial Crisis did impact on some parts of the financial services industry but the effects were not concentrated in a particular centre loke London or New York and most banks, being local or regional, were not affected. Also people tend to rent their houses rather than own them so those who lost their jobs did not automatically lose their homes too. The real cushion, though , is the impressive saving rate which averages 10% and has been at that level for many decades.
Why do Germans save so much?
Why do Germans save? Here you have to look at the individual to understand how society functions. Barely under the surface there is financial Angst everywhere – about inflation, about poverty, about dependency. Most private investors have very low expectations of returns and are happy to pour their hard-earned Euros into building society accounts, very long term insurance plans and even, as happened recently, into bonds paying negative returns. The main driver is capital preservation.
It has been said that a major cause of the Euro crisis has been the imbalance caused by Germany’s massive trade surplus (£160bn in 2012) in combination with the stinginess of consumers here. And it is true that, unlike the British, Germans rarely feel the need to splurge. In the early 2000s unemployment was much higher than it is now and was indeed a very effective brake on consumer spending. Now, for example, the unemployment rate in Bavaria (pop. 12.5m) is 3.6% – youth unemployment is 2.4% – and there is no visible change in shopping behaviour.
The Deutschland on Loch Broom
The Germans are big spenders on Scottish holidays
Cars are one exception to this rule of parsimony. Foreigners are usually amazed by the number of high specification limousines on the roads in Germany. Many are company cars but often powerful and expensive cars are owned – and treasured – by individuals. Even for people on relatively low incomes the car is still an important status symbol here. Of course people buy German cars – Volkswagen, Mercedes, Audi, BMW and Opel are the top selling brands and share well over 50% of the market.
The other exception is holidays. Germans take their holidays very seriously and spend serious money to experience exotic, well-planned vacations regularly throughout the year. Most employees have 6 weeks leave per year in addition to 15 or so public holidays, all of which are taken religiously. This is good news for places like Scotland where German visitors spent £140m in 2012.
You may be thinking about how to help Germans spend their money? In fact there is an increasing trend for private and institutional investors to look for foreign opportunities as it is becoming difficult to find sensible investments in Germany. The stock market is relatively small, nascent share traders were wiped out in the dotcom disaster and real estate, the most popular asset class for excess capital, has become very expensive, partly because of foreign buyers. So this would possibly be a good time to try out your investment proposition. But in German please.