Who lends money to governments

Monetary policy : How do states get into debt?

If a private person needs more money than he has available, he takes out a loan from his bank or savings bank. When a state spends more than it earns through taxes, it incurs debts by issuing securities to banks, mutual funds, or insurance companies. Or directly to its citizens. The German federal treasury bond is nothing more than a government bond.

Rating agencies rate countries with credit ratings. They use this to estimate how likely it is that a country will repay its debts. The more uncertain the situation of a country, the worse the valuation and the more interest investors charge. So if the credit ratings go down, then the credit for the states becomes more expensive. In the worst case, they won't get any more money.

Germany is considered one of the best debtors in the world. The debts are high: at the end of 2009, the total debt of the federal government alone was around one trillion euros. For this, the federal government paid almost 40 billion euros in interest last year. That's exactly how much he had to take on in new debt. The interest burden is the second largest item in the federal budget after pensions.

The German debt is managed by the finance agency. The wholly owned subsidiary of the federal government is based in Frankfurt. 340 employees are busy every day paying due loans and getting fresh money as cheaply as possible. The finance agency borrows up to ten percent of the money by means of short-term loans from commercial banks. With this she balances the account of the Federal Republic of Germany every day. If the salaries of the civil servants are due at the end of the month, but the taxes are not collected until a week later, there is quickly a gap of several billion euros in the account.

The vast majority of German debt is in all types of fixed income securities. There are 10-year bonds, five-year bonds, or two-year treasury bills. New papers are brought onto the market in auctions almost every week, usually on Wednesdays. There is a permanent consortium of bidders consisting of 32 banks. You let us know in advance how many papers you want to buy and at what interest rate. The finance agency decides to whom to grant the bonds. In addition to Deutsche Bank and Commerzbank, the consortium also includes five Landesbanken, US investment banks such as Goldman Sachs and J.P. Morgan or the Swiss UBS.

The banks pass the papers on to pension funds, insurance companies, asset managers or private investors around the world. Private individuals can also buy day bonds or federal treasury bonds directly from the finance agency. Since the government bonds are also traded on the stock exchange, it is difficult to determine who is holding them.

For the banks, the debts that the states have are a lucrative business. They put the government bonds on the market at a profit, and they can deposit the paper as collateral when borrowing from other institutions. The other way around applies: If the banking system collapsed, the states would go bankrupt very quickly. Miriam Schröder

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