The EU debt crisis might save some northern European nations money
May 2, 2013
There is a popular perception worldwide that the debt crises in euro zone nations like Ireland, Spain, Greece, Cyprus and Portugal ultimately cost tax-payers in more financially euro-using nations money as the European Central Bank (ECB)had to provide bailout funds to prevent wholesale national financial collapses in these nations. A new analysis by Reuters indicates that this piece of convectional wisdom may be wrong, and that in fact taxpayers in nations like Germany, Finland, France, The Netherlands and Austria may have actually benefit indirectly because of the low borrowing costs their nation's enjoyed.
A surprise benefit
"As an unintentional consequence of the crisis, Finland has benefited enormously," the head of EU affairs at Finland's ministry of finance Martti Salmi told Reuters. "We have not lost a cent so far. The same as for Germany very much holds for Finland."
A study by Allianz, a German insurance company, calculates that the nation saved approximately 10.2 billion euros between 2010 and 2012 because their borrowing costs have declined by 2 percent. A separate study demonstrated that the federal budget saved 8.6 billion euros during 2011 both because of low interest rates and increased investor interest in the nation as a safe-haven.
More over, a euro zone break-up, one of the feared consequences of not offering ECB bailouts to debtor nations, could have cost Germany 1.2 trillion euros over the 13 years, note Reuters, half the size of the entire national economy in 2012.
While not all northern European nations have benefited as much as Germany, Finland, France and Austria have all seen savings due to lowered borrowing costs.
Some risk still present
Norther European tax payers could still suffer from bail-out deals if nations with large central bank loans default, though that is becoming increasingly less likely as time goes on. Ireland and Portugal have nearly extinguished their debts, and Spanish default has always been unlikely, reports the source. Greece and Cyprus represent a larger concern. Cypriot finances are carefully monitored as a result of their early 2013 bailout leaving Greece as the only real default risk. Some analysts did note that there are reasons to hope that the Greek situation will improve.
ECB cuts interest rate
Northern European beneficiaries of low ECB interest rates will soon begin saving even money. In response to the recession that continues to grip most of the European Union, the central bank decided to cut its key interest rate for the first time since June of 2012. The interest rate on the main refinancing operation was reduced by a quarter percentage point to a record low of 0.50 percent. The hope is that the additional cash this will put into the European economy will stimulate some expansion.