Germans' stern cash culture

For the 36 pct. of Germans who use credit cards (compared to 62 pct. in the U.S.), the limit is tied to the customer's bank balance, and the bill is automatically paid off - in full.
For the 36 pct. of Germans who use credit cards (compared to 62 pct. in the U.S.), the limit is tied to the customer's bank balance, and the bill is automatically paid off - in full. (MICHAEL PROBST / AP)

Their attitude to credit, debt - and Eurobonds - stems from the fiscal trauma of pre-Nazi era.

Posted: July 30, 2012

BERLIN - Head to the checkout at an Ikea in Stockholm to pay for your new leather corner sofa, and with the swipe of a Visa card, it's yours.

Don't try it in Berlin, though. That'll be 1,699 euro ($2,080) cash up front, please.

It's that financial culture - a deep-seated aversion to debt and an emphasis on responsibility - that makes Chancellor Angela Merkel's hard-line approach to solving the European financial crisis so popular in Germany.

The attitude shows up in all walks of life, from the daily trip to the grocery store to putting a roof over your head.

The economy is so reliant on cash for transactions small and big, a way to ensure you don't spend more than you have, that Germany pushed hard for the 500-euro note to replace its popular 1,000-mark bill when it joined the common currency.

It's one of the largest denomination notes being produced anywhere today, worth about $600, and is even known in neighboring France as "the German note."

Though Germany is Europe's largest economy and one of its richest per capita, it ranks last in home ownership, with just over 40 percent. That compares with about 80 percent in such troubled European Union nations as Greece, Italy, and Spain, and about 70 percent in Britain and the United States.

Germans tend to be instinctively averse to taking out mortgages. And lenders often demand a 20 percent down payment on a house or substantial collateral, so a culture has sprung up of renting and holding on to cash.

When mortgage debt shot up more than 20 percent in the EU between 1998 and 2010 - and more than 35 percent in Britain and 60 percent in Ireland - Germany was the only EU nation to see it fall, with a drop of 5.4 percent in that period, according to the European Mortgage Federation.

German aversion to debt also translates to credit-card use - or nonuse. Only 36 percent of Germans over the age of 15 possess cards, compared with 62 percent in the United States, according to World Bank figures. And even when a German does have a credit card, the limit is usually tied to the customer's bank balance, and the bill is automatically paid off - in full - from the customer's account within a month or so.

"If I pay with my Visa, then Visa takes it from my account - I don't get any real benefits," said Rainer Hoedt, a Berlin high school teacher. "When we use our credit cards, it's basically only when we go to the States and do our travel expenses through it because it's so easy. Here . . . I don't use it at all."

Merkel has been derided as intransigent in her approach to the financial crisis, demanding budget cuts and fiscal austerity. But her hard-line stand plays well among the people who elected her.

A new poll for Stern magazine shows 64 percent of Germans think the chancellor should stick to her guns, while only 32 percent think she should reconsider her insistence on austerity. The Forsa agency questioned 1,003 adults July 5 and 6 for the poll, which had a margin of error of plus or minus 3 percentage points.

That means that many measures politicians and economists believe offer a way out of the debt crisis are considered unacceptable here.

Take Eurobonds. Such joint debt could help ease the crisis by pooling risk among rich eurozone countries like Germany and their crisis-hit neighbors. No way, say Germans. Eurobonds, they argue, would just encourage profligate countries to blow their budgets even further, not to mention raise German borrowing costs.

Bailouts? Fine, but only if countries agree to strict austerity measures to get their financial houses in order.

Print money? Not a chance, Germans say, still haunted by the memory of the hyperinflation of the early 20th century that helped create the conditions for Hitler's rise.

Germany's attitude to credit and debt largely stems from the financial trauma of the years that preceded the Nazi era. In the wake of massive reparation payments after the loss of World War I, the German mark went from its wartime level of about four to five per dollar to several trillion to the dollar.

Germany only agreed to give up the mark in favor of the euro because the European Central Bank was designed just like the Bundesbank, Germany's central bank, as an anti-inflation watchdog whose mandate did not include political considerations such as stimulating job growth.

The experience of hyperinflation is one that has been passed from generation to generation, said DZ Bank research economist Michael Stappel.

"My grandmother always talked about how, every day, prices were going up, how a bread roll that cost 10 pfennigs then cost five million marks. And that could never be permitted to happen again," he said. "And my grandmother never spent - she always saved, maybe 80 percent she saved."

Today, Germans don't save quite that much - 11 percent on average - but that's still higher than, for example, less than 6 percent in the United States or 6.5 percent in Japan.

And even the approach to saving is conservative, with 40 percent going into bank accounts, 30 percent into life insurance, and 6 percent into stocks, Stappel said. An additional 3 percent goes into bonds.

So when Merkel holds Greeks and Spaniards to strict standards in return for EU bailout funds - to which Germany is the largest contributor - and shoots down ideas on quick fixes to the euro crisis, it should come as no surprise, Stappel said:

"It's a part of the German culture."

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