Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

A tale of two borrowers: investors punish Britain but spare Germany

A tale of two borrowers: investors punish Britain but spare Germany

Investors have dumped UK assets after the British government announced plans for a huge rise in borrowing to fund tax cuts, but Germany has not suffered the same punishment despite a vast borrowing spree of its own.

Germany has unveiled a 200 billion euros ($196.10 billion)package funded by new borrowing to pay for capping natural gas prices and cutting taxes on fuels sales to shield companies and households from the impact of soaring energy prices after Russia cut energy supplies to Europe.

This represents around 5% of Germany's total gross domestic product and is equal to roughly half of Germany's funding needs this year, but its government bond yields - a gauge of its borrowing costs - have actually dropped.

In contrast, Britain's "mini" budget announcement to fund tax cuts and an energy price cap by borrowing less than half of Germany's amount sent UK stocks, bond prices and the pound into free fall. The Bank of England had to step into the bond market to tame the volatility and push yields down.

Britain's borrowing costs over 10 years are now twice those for Germany, showing how investors view the two countries very differently. ,

Germany's "package is more broad-based in terms of support compared to the perception (of the) mini budget in the UK," said Annalisa Piazza, fixed income research analyst at MFS Investment Management.

The British government's move to cut the top tax bracket "was one of the major sell-off points for the market," she said. The wealthy are less likely to cut spending due to inflation, so markets are questioning how much the UK’s tax cuts would boost growth, unlike in Germany, Piazza said.

Germany's is "supporting those parts of the population that can make a difference in terms of spending," she said.

Britain's tax cuts have drawn a rare rebuke from the IMF for being untargeted at a time of high inflation and will likely keep pressure on its budget deficit even after energy support measures expire.

LONGER-TERM


To be sure, German yields have risen sharply in September, though far less than in Britain. The market's reaction to the German plans may also be muted as investors are waiting for more detail on when exactly Germany will complete the funding, and how much of it may be raised by longer-term debt, which puts more pressure on markets.

On Wednesday, Germany's debt office had already said it would raise 22.5 billion euros more during the fourth quarter than originally planned for government spending to tackle the energy crisis. This represents an increase of just 5% for the year. Less than half of it will be raised by longer-term debt.

So even before Germany's bumper 200 billion euro package was unveiled, the government's borrowing figures were far less than the 72 billion pounds ($79.98 billion) Britain plans to raise over the next six months, representing a roughly 45% increase for this financial year, which will also be raised mostly through longer-term debt.

Gerard Fitzpatrick, head of fixed income at Russell Investments, said he expects issuance backing the German spending to be more spread out than in Britain.

"I think a more sensible, longer-term sensible spending programme is somewhat more acceptable to the bond market," he said.

Also, Germany, which has a much lower debt-to-GDP ratio than Britain, will raise the money in a way that will allow it to comply with its "debt brake", which places a strict limit on new borrowing other than in exceptional circumstances.

"The other message is that behind the protective screen we are putting up around us the debt brake will continue to work: a clear message to the world's providers of capital that Germany remains solid," Germany's finance minister Christian Lindner said on Thursday.

($1 = 1.0199 euros)

($1 = 0.9002 pounds)

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
France Requests Airlines to Cut Flights at Paris Airports Amid Planned Air Traffic Controller Strike
Poland Implements Border Checks Amid Growing Migration Tensions
Emirates Airline Expands Market Share with New $20 Million Campaign
Amazon Reaches Milestone with Deployment of One Millionth Robot
Yulia Putintseva Calls for Spectator Ejection at Wimbledon Over Safety Concerns
House Oversight Committee Subpoenas Former Jill Biden Aide Amid Investigation into Alleged Concealment of President Biden's Cognitive Health
Amazon Reaches Major Automation Milestone with Over One Million Robots
Extreme Heat Wave Sweeps Across Europe, Hitting Record Temperatures
Meta Announces Formation of Ambitious AI Unit, Meta Superintelligence Labs
Robots Compete in Football Tournament in China Amid Injuries
China Unveils Miniature Insect-Like Surveillance Drone
Marc Marquez Claims Victory at Dutch Grand Prix Amidst Family Misfortune
Germany Votes to Suspend Family Reunification for Asylum Seekers
Budapest Pride Parade Draws 200,000 Participants Amid Government Ban
Southern Europe Experiences Extreme Heat
Xiaomi's YU7 SUV Launch Garners Record Pre-Orders Amid Market Challenges
Jeff Bezos and Lauren Sanchez's Lavish Wedding in Venice
Russia Launches Largest Air Assault on Ukraine Since Invasion
Massive Anti-Government Protests Erupt in Belgrade
Iran Executes Alleged Israeli Spies and Arrests Hundreds Amid Post-War Crackdown
Hungary's Prime Minister Criticizes NATO's Role in Ukraine
EU TO HUNGARY: LET THEM PRIDE OR PREP FOR SHADE. ORBÁN TO EU: STAY IN YOUR LANE AND FIX YOUR OWN MESS.
Hungarian Scientist to Conduct 30 Research Experiments on the International Space Station
NATO Members Agree to 5% Defense Spending Target by 2035
NATO Leaders Endorse Plan for Increased Defence Spending
U.S. Crude Oil Prices Drop Below $65 Amid Market Volatility
International Astronaut Team Launched to Space Station
Macron and Merz: Europe must arm itself in an unstable world
Germany and Italy Under Pressure to Repatriate $245bn of Gold from US Vaults
Iran Intensifies Crackdown on Alleged Mossad Operatives After Sabotage Claims
Trump Praises Iran’s ‘Very Weak’ Response After U.S. Strikes and Presses Israel to Pursue Peace
Oil Prices Set to Surge After US Strikes Iran
BA and Singapore Airlines Cancel Dubai Flights Amid Middle East Tensions
Trump Faces Backlash from MAGA Base Over Iran Strikes
Meta Bets $14 B on Alexandr Wang to Drive AI Ambitions
FedEx Founder Fred Smith, ‘Heart and Soul’ of the Company, Dies at 80
Chinese Factories Shift Away from U.S. Amid Trump‑Era Tariffs
Pimco Seizes Opportunity in Japan’s Dislocated Bond Market
Labubu Doll Drives Pop Mart to Status as China’s Most Valuable Toy Maker
Global Coal Demand Defies Paris Accord Goals
United States Conducts Precision Strikes on Iran’s Nuclear Sites
US strikes Iran nuclear sites, Trump says
Telegram Founder: I Will Leave My Fortune to Over 100 of My Children
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Shock Within Iran’s Leadership: Khamenei’s Failed Plan to Launch 1,000 Missiles Against Israel
×