| Why do the Germans appear so gloomy when apparently they have every reason to be cheerful? All the indicators are right; interest rates are at an historic low and there is little prospect of rate rises in the near future. The Dax index of leading German shares storms almost daily from one record to another, propelled by optimism about leaner management, better returns for shareholders and further consolidation in sectors like banking and car manufacturing. The feelgood factor has also spilled over into the financial sector. Monthly trading on the German stock exchange was almost double 1995 volumes last year and investors are turning over their German stock and bond portfolios at an unprecedented rate. Borrowers want to issue debt sooner rather than later with the Deutschmark yield curve so steep. Emerging-market borrowers are also taking advantage of unprecedented low interest rates to borrow Deutschmarks. Even the federal government is thinking of borrowing ahead of its needs by issuing 30-year bonds. It is just as well for the German government that the financial market is in such a buoyant state. Bonn has not forgotten how, at the beginning of the 1990s, the vast sums it borrowed to rescue the eastern German economy drove interest rates up dramatically to unprecedented levels. |