Sunday, April 3, 2016

Debt and German Cities

It's not a topic that state-run TV or journalists in Germany will discuss much.....a growing number of urban areas in Germany in a debt crisis.

Back in December....Ernst and Young (the audit experts) had done a review of German city debt, and released a decent but short report over it.

They looked at seventy-two German cities who had a minimum of 100,000 residents, and noted that debt rose overall  by 3.2-percent.  The mountain of debt by the German cities?  Eighty-two billion Euro (roughly 100-billion US dollars).

Some cities are better off than others.

What Ernst and Young briefly hinted at....is that this debt is a developing crisis for the future.  They've benefited from some low-interest rates from the past couple of years, and this will eventually come to an end.....with debt exploding as rates escalate.

Saarbrucken was listed in this analysis....with each resident owing 11,568 Euro.  177,000 Resident.  That's roughly two billion Euro that the city owes someone.  You can sit and imagine the yearly interest payments on the two billion and shake your head over how the mayor and city council quietly sit there.....grinning as they discuss the yearly budget and the promises they made to fix this city street or upgrade this museum.....then slide five or six million Euro each month over to a debt payment, which doesn't really do much to decrease the debt but makes the bank happy to avoid trouble. That six million would have paved a mighty long street, but it's going for interest payments.

I bring this up because last night....one of the commercial networks in Germany ran a four-hour documentary piece where a major problem  exists in Kaiserslautern.  The city could probably do a major fix and reverse this urban dilemma.....with just three million Euro.  The mayor.....a friendly guy who has a PhD education....just laid it out in a blunt fashion.....they don't have three million laying around.  They have a debt of roughly one-billion Euro, for a city with approximately 98,000 residents.  In his sense of things....he'd like to pull out three million and fix this urban mess on his hands, but he's busy paying down on the debt and covering strictly basic necessities of the city.

What's brewing here?

Germany has been on a positive economy trend (with the exception of the 2008 world crisis) for twenty-odd years.  People have gotten so used to the positive trend....that they really don't envision a economic crisis developing or a major recession.

Every year, Berlin hands out billions to urban communities and they all expect their level of funds to continue at the same rate.  In the same fashion, they expect the interest rate to remain low.  So, they are begging for a major economic downward trend at some point.  When you have forty-odd German major cities talking up a crisis and how they can't pay debt.....it simply begs for political disenchantment and voters grasping at straws to get people in to fix the problem.  It's not a great position to be in.

So, when some dull business report pops up on German city debt and a slide or two gets put up with debt per resident.....you might want pay attention.

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