I find it interesting that despite how easy it is for Europeans to invest in other European Union nations, Germans choose to forgo higher returns to be found in other countries and just keep their money yielding less at home. All European Governments guarantee deposits up to 100,000 euros and despite how hard the financial crisis hit Europe, no European government has defaulted on this promise. Germans have stashed 2T Euros in bank savings.
Despite being able to obtain higher yields, the collective mentality of the German people has been to avoid the perceived risks of the “lesser” European countries when there is really no risk at all.
Source: Saving Disgrace [link details missing / broken!!]
4 Comments
I can see where Germany is coming from though. The German taxpayers are probably fed up with Greece keeps defaulting on its bailout funds.
Skimpy — where are data on German portfolio holdings??
Note however the old Feldstein-Horioka paradox that countries in general keep most of their savings at home (they actually looked at the correlation of domestic investment and domestic savings). As an aside, when I was on Wall Street I worked a few desks away from Charlie Horioka’s mom, who was always telling me about her son the Harvard PhD student. I since have spent many days with him in one or another context, albeit mainly in Japan and not the US!!
This makes me think of the familiarity heuristic that was highlighted in the blog concerning the NCAA Bracket. It seems intuitive that Germans would trust a fellow countryman/woman more than a business owner who didn’t share the same nationality. I also read a neat article in Institutional Economics that pointed out the stereotype biases Europeans hold against each other (French and British mistrust each other significantly more than other countries) for a variety of cultural reasons. These biases were so strong, they were a better predictor of trade levels than the actual cost of trading.
How is the French economy doing relative to that of Germany? What are the relative structures of debt, and of banks vs securities in their economies? Are there other reasons besides culture why rates might diverge?
Comments are closed.