Germany wins risk plaudit from BlackRock research

At the end of a quarter in which Germany won plaudits as the main economy to save the Eurozone from recession, it has won approval in an index of sovereign risk from $3.7trn asset manager BlackRock, as it jumped to sit among the world’s safest 10 sovereigns.

Germany’s relatively low sovereign risk may be tested, however, as Chancellor Angela Merkel will face pressure to loosen purse strings and promote Eurozone growth, as per the election campaign of her newlt installed French counterpart, Francois Hollande.

Before this at the end of March, however, Germany overtook Denmark, Australia, Chile and South Korea to become the eighth safest sovereign, according to BlackRock’s analysis.

The seven before it in descending order are Norway, Singapore, Sweden, Switzerland, Finland, Taiwan and Canada.

The $3.7trn global asset manager is not along in its opinion about Europe’s largest economy and its leaders – yields on 10-year Bunds fell to an all-time low of 1.44% yesterday because investors sought their comparative safety as it became clear Athens will call new federal elections.

BlackRock said in its April sovereign report, which feeds into the group’s overall investment strategies, that Germany’s upgrade was “triggered by higher ratings for government stability and popular support by one of our third party sources, consultancy Political Risk Services.”

BlackRock did note Merkel’s CDU party lost power at the ballot boxes in Baden-Württemberg, which was followed by a similar humbling in mid-May in North Rhine-Westphalia.

However, over the first quarter Germany improved in terms of ‘willingness to pay’ – as measured by its government’s perceived effectiveness and stability, and corruption – ‘external finance’ including exposure to foreign currency debt and its account balance – and the strength of its banking system. It lost ground when viewed in terms of its debt to GDP, debt term structure, tax revenues and dependency ratios.

Such continued prowess has meant it stays attractive for many asset managers.

Rupert Watson, head of asset allocation at Skandia Investment Group, highlighted the 0.5% first quarter economic expansion, and unemployment at 20-year lows.

He said: “With unemployment at the lowest in over 20 years and business and consumer confidence still very high, it is easy to see why Germany is still not feeling the rest of the region’s pain.

“The German economy continues to grow strongly, boosted by the strength of its exports to emerging economies such as China and steadily rising consumption. From Germany’s perspective it is reaping the rewards of a decade of prudence, while the peripherals are paying for a decade of excess.

“Germany argues, with some justification, that it is not its fault that others have wasted the last 10 years, and that to close the gap requires the Spanish and Italians to become more German, not the other way round.”

But Watson added “attempting to resolve 10 or more years of mismanagement in a short space of time was always going to be a push. The clash between this and the political realities have been growing for some time.

“Germany needs to give the peripheral economies more time to resolve their problems or risk financial and political chaos on its doorstep.”


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