Bill Mitchell – Germany fails to honour its part of the Greek bailout deal

In this blog – The fiscal role of the KfW – Part 1 – I recounted how the government-owned German development bank, KfW (Kreditanstalt für Wiederaufbau) – interacts with the German Finance Ministry to allow its fiscal balance to move into surplus without the commensurate level of fiscal drag that would normally be associated with that degree of fiscal withdrawal. The intent of the blog was to show how the Germans cleverly use their state-owned development bank to advance ideological positions not available to other states that have either privatised these type of institutions or never created them in the first place. It is ironic given the Germans insistence that countries like Greece privatise everything in sight. Today’s blog returns to the KfW, in part, because new information has emerged where we learn that the Greek crisis has allowed the German Ministry of Finance to run surpluses without melting their economy down. The KfW’s role in that regard is undoubted. It has been a source of bailout funds for Greece, on behalf of the German government, and has been pocketing handy profits ever since. This information shows that the popular claims that German taxpayers are bailing out Greece are clearly false and just political verbiage. Further, despite the understanding that the Member States (bailout partners) would remit any profits made on asset holdings associated with the Greek bailout, the Germans have reneged on that deal, in part, because it has channeled those profits through the KfW, which it claims is at hands length to the government, despite being 100 per cent government-owned.

Double-dealing.

Bill Mitchell – billy blog
Germany fails to honour its part of the Greek bailout deal
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — The fiscal role of the KfW – Part 1

Smoking hot!

This is the first part in what might be several blogs. I will see where my curiosity takes me. Today I want to invoke that well-known piece of inductive reasoning the – Duck Test. We all should know how that goes. But consider this reasoning. We have an institution that is 100 per cent government owned. It borrows millions and its liabilities are 100 per cent guaranteed by the federal government. It spends, I mean lends millions each year at very low rates to all manner of firms, organisations and even builds infrastructure. It also takes equity positions (provides capital) to a range of enterprises. It pays no tax having the same status as the central bank. It is not a duck but looks very much like a government fiscal entity. Welcome to the Kreditanstalt für Wiederaufbau (Reconstruction Credit Institute) or as it is now known the – KfW. This bank was created in 1948 as a German vehicle to faciliate the infrastructure rebuilding under the Marshall Plan. It has since grown (and diversified) into one of the largest banks in Germany (taken its main business units into account) and pumps millions of Euros in the domestic economy and the export sector (via IPEX, its 100 per cent owned subsidiary). It is a major reason why the public debt ratio in Germany is 80 per cent rather than close to 100 per cent. It is a major reason why the federal deficit has been reduced without scorching the German economy. It is a story about smoke-and-mirrors accounting, German-style.

Bill Mitchell — billy blog
The fiscal role of the KfW – Part 1

Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia