Hamish McRae: Cheaper borrowing boot now on the German foot
Thursday 26 July 2012
Outlook Across the Channel, the evidence of recession is mounting, with even the German economy heading towards this, if the latest Ifo and purchasing managers' surveys prove correct. Both have been falling in the past couple of months, and would be consistent with a slowly shrinking economy. This is despite the fact German companies can still borrow at very competitive rates of interest.
Click HERE to view graphic
One of the great unfair features of the eurozone at the moment is that the nationality of a company has a profound effect of the cost of its capital.
Take two corporations, one German, the other Spanish. On paper they might appear identical: the same size, the same industry, the same capital ratios, the same profits and so on. But as you can see from the right-hand graph, a top-ranked German company seeking a five-year loan would expect to pay around 3.5 per cent while a Spanish counterpart would be paying close to 6 per cent. A French company would be somewhere in between, but closer to the German one.
So what is happening is that, quite aside from the burden of weaker domestic market conditions, firms in those weaker countries have to cope with higher financing costs.
There are a couple of obvious reasons for this. One is the higher cost of funding for Spanish banks vis-à-vis German ones, because people want to hold "German euros" rather than Spanish or Italian ones, just in case the eurozone were to break up. The other is the greater perceived risk facing the business community in the peripheral economies.
But if this seems unfair, and it is, consider this. Back in 2003-6, when Spanish companies went on a great borrowing spree (including the highly leveraged £16bn takeover of BAA), they could borrow even more cheaply than German companies. The boot is now on the other foot.
Diving in at the deep end is no excuse for shirking the style stakes
- 2 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
- 3 Why I'm on the brink of burning my Israeli passport
- 4 L'Oreal cuts ties with Belgium supporter Axelle Despiegelaere after hunting trip photographs
- 5 The true Gaza back-story that the Israelis aren’t telling this week
Game of Thrones author George RR Martin says 'f*** you' to fans who fear he will die before finishing Westeros saga
Supermoon 2014: When and why will the moon look bigger and brighter this summer?
Gaza-Israel conflict: The terrible price children are paying for Israel’s war with Hamas
Rotten-egg smell of farts could help battle heart disease and Alzheimer's
Online trolls target alleged rape victim Jada, by copying how she appeared in video of attack
Sustained immigration has not harmed Britons' employment, say government advisers
War is war: Why I stand with Israel
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Australia facing international condemnation after turning around Sri Lankans at sea
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
Socialist Worker called to apologise over ‘vile’ article saying Eton schoolboy Horatio Chapple's death is ‘reason to save the polar bears’
iJobs Money & Business
£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...
£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...
£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...
£40000 per annum: Harrington Starr: Network Engineer (CCNA, CCNP, Linux, OSPF,...