Germany’s current account surplus — the balance of all its transactions with the rest of the world — is the highest in the world. In 2018 it was $294 billion. Japan’s surplus was $173 billion. China’s was a paltry $49.1 billion in the same year (although non-official estimates put the actual number $1 billion higher). Meanwhile, the U.S. ran up a current account deficit of $478.6 billion. Germany’s staggering surplus reflects a basic truth about the country. Germans like to save. They don’t like to spend. Here is an explanation for why that is true….
What an Exhibition on Money Saving Tells us about the German Soul
By Beda Romano
Few countries in Europe tend to cultivate self-analysis with the same energy and steadiness as Germany. While talk-shows remain an example of popular education and encourage TV viewers to reflect - at a time when information is warped by the accelerated news cycle of the Internet - the Deutsches Historisches Museum is the place where Germans discuss publicly their strengths and even their weaknesses, as the museum plays the role of a psychoanalyst for an entire nation. Located in the former royal armoury on the Unter den Linden in Berlin, the museum organized an exhibition, in the course of 2018, on the very German propensity for saving money. The title was Sparen– Geschichte einer deutschen Tugend, “Saving Money – History of a German Virtue.” At first, the initiative seems likely to be boring and would attract only a handful of visitors. Actually, the exhibition attracted thousands of visitors and allowed for an introspective voyage into the German soul.
In the last few years, Germany has been accused of saving without spending, of exporting without investing. According to the 2017 IMF World Economic Outlook, Germany’s current account surplus as a percent of its GDP stood at 8.05%, while Japan’s was 4.0% and China’s, 1.37%.
The country’s current account surplus is as high as it is controversial and it has become the target of numerous critics in a number of South European member states of the Eurozone. If Italy is in dire straits, many Italian politicians argue, it is not because it has a huge public debt, a terribly inefficient public administration and a tentacular form of clientelism. Rather it is because Germany imports too little and saves too much. [Similarly, in the United States, Germany bashing by the Trump administration is a regular feature of White House rhetoric.]
At the start of 2010, the German newspaper Die Welt published suggestions on how to spend cleverly during the year. Among other things, it advised readers to purchase a bicycle. But it urged its readers to purchase a bicycle in the month of January because bikes are cheaper then. The same applies to garden furniture. Those who appreciate wine ought to replenish their stocks in February when wine merchants will usually put their remainder stock on sale after the revelries of New Year’s Eve. Summer holidays should be planned in March as to take advantage of discounts. Prices of newly published books tend to fall five months after the Christmas buying spree, becoming therefore particularly attractive: so buy your books in May. In July, while Germans have already headed to the beach, second-hand cars are surprisingly cheap. In August, tomatoes and bananas are real bargains for fruit lovers. Die Welt also suggested to its readers to purchase gold in September before the wedding season in India ignites the usual October gold rush, triggering price increases of the precious metal. In December, the cost of heating oil hovers around yearly lows as most Germans have already stocked up before the approaching winter. The newspaper even advised its readers to buy calendars for the new year in November, in advance of December’s last-minute price hikes. In this context, the Berlin exhibition sought to give a historical interpretation of Germans’ traditional frugality.
The first savings banks were founded in Germany in the Hanseatic ports of Hamburg and Bremen in 1778. At the start of the industrial revolution, savings were essential to finance economic growth. The end of the Napoleonic wars gave new impetus to the phenomenon in an impoverished Europe. In 1838, as Germany was still a patchwork of kingdoms and princedoms, there were local Sparkassen in almost every city. Children as young as 10 had their own savings account.
Following the Franco-Prussian war of 1870, France had to pay Germany financial compensation worth five billion francs. The newly-born German government decided to use most of the money to repay the war bonds bought by its citizens.
In the second half of the 19th century, incentives to save came from the economic establishment and the political class alike. In the footprints of Chancellor Otto von Bismarck, industrial magnates of the caliber of Friedrich Alfred Krupp, August Thyssen, Gottlieb Daimler or Hugo Stinnes, as well as a long string of small entrepreneurs, considered the habit of saving money as a policy to avert social rebellions.
As a way to lessen the risk of blue-collar revolts, workers were given easy ways to open bank accounts and start saving. With far-sighted opportunism, the German establishment turned workers into investors and peasants into landowners, thus planting the seeds of a new bourgeoisie in the lower social classes.
At the turn of the century, the German sociologist Georg Simmel published Philosophie des Geldes, “The Philosophy of Money” (1900), in which the he wrote that money is not based on production or work, as Karl Mark argued so famously, but rather on trade. Trading is the true criterion of value, rooted in sacrifice as well as in gain.
Nazism, in turn, contributed to turn a natural propensity for saving money into a collective virtue and a national objective in a planned economy devoted to self-sufficiency. The Nazi regime abolished the interest rate on loans, as it considered interest to be a Jewish abomination. But the cost of money is not only a reward for the face of a loan. It is also an insurance against the possibility that the debtor fails to reimburse. At first, increased savings were a way to counter money lending by Jews. Later, the abolition of interest rates dried up credit flows so badly that it made savings an unavoidable necessity for those who wanted to promote economic activity through new investments.
Following World War II, saving more was a reaction to the conflict’s deprivations as well as a trigger of postwar reconstruction. At the time, Fritz Butschkau (1901-1971), a banker and close friend of Chancellor Konrad Adeanuer, was convinced that consumer credit was a source of financial instability.
By many accounts, the Berlin museum’s initiative was the German answer to an Italian exhibition that took place in 2011 in Florence’s Palazzo Strozzi and was titled: Denaro e Bellezza – I banchieri, Botticelli e il rogo delle vanità, “Money and Beauty – Bankers, Botticelli and the Bonfire of The Vanities.” While Palazzo Strozzi underlined the characteristically Italian relationship between money and art, the Deutsches Historisches Museum stressed the moral character that Germans tend to give to economic activity. While in Italy the propensity for saving is mostly the result of a deep distrust of the political class and of public authorities, in Germany it is often seen as a consequence of the hyperinflation of the 1920s.
Actually, the habit of saving money in Germany is not as much the result of past instability as much as an instrument for shaping the future. Rightly so, Germans believe that the past is irrecoverable, gone forever, and that the present is by nature evasive and cannot be seized. The uncertainty of the future is a source of distress. Saving money becomes instrumental to counter the anxiety and to mold a better fate. Unsurprisingly, Germany’s Stabilitätskultur has its roots not only in the hyperinflation of the 1920s; it is above all an indispensable prerequisite in the casting of one’s own life. During the Wirtschaftswunder postwar period, an ad on German TV argued that “saving [was] the best way to reach one’s objectives.”
This piece was published in Brussels in December 2018. Beda Romano is the Brussels correspondent for Il Sole 24 Ore. He can be reached at email@example.com.