Inside the Germans' debt psyche - what makes them tick?

German flag with eye Image copyright Thinkstock

Germany is the world's fourth largest economy, the beating heart of the eurozone and guardian of financial discipline. So when it comes to money - and especially debt - what makes Germans tick?

The election of Greece's left-wing government on a promise to reduce the country's mountain of debt has created a standoff with Europe's economic powerhouse. And it has thrown Germany's ultra-conservative attitude to debt into sharp focus.

Germany's extreme debt aversion is even rooted in the German language itself, says Prof Marcel Fratzscher, head of Germany's leading Economic Research Institute.

"The German word for debt - 'schuld' - is the same as the German word for 'guilt'," he explains. "To get into debt you have done something bad and that describes the German people's attitude quite well."

Image caption Debt is inextricably linked to wrong-doing in the German language, says Prof Marcel Fratzscher

The German way is to "save now, have later" rather than "have now, pay later" - and that is not just the older generation talking.

On the streets of Berlin young Germans told us what they would do if they won a million euros. A new car, a holiday, a new outfit? "I would save it for when I need it," came a typical reply.

That habit of saving money is the key to understanding another characteristic of Germans - fear of inflation.

Popular wisdom says that this is due to the scars left by hyperinflation in the 1920s, when the exchange rate escalated out of control. One US dollar went from being worth four Deutschmarks to four trillion.

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Image caption Kitemark: hyperinflation meant that money was more useful for making a kite than buying one in the 1920s

There may be some residual echoes of that period but it is nearly 90 years ago now and Germans have moved on.

The real reason is to be found in the German love of saving.

Inflation is the enemy of savers. So for a nation full of them, the idea of lowering interest rates and printing money holds a double threat - it reduces the rate you get on your savings, while any potential future inflation would mean that those same savings allow you to buy less.

The good news for Germany is that inflation hasn't arrived and, although interest rates are low, the related weakness of the euro has kept German exports like cars and machinery competitively priced.

Indeed education, engineering and exporting success is the source of considerable German pride.

Economists credit the post-war economic miracle - or "Wirtschaftswunder" - to a set of crucial, interlocking principles - ones that you can see at work in the Menzel family's electric motor factory in Berlin.

Image caption Mathis Menzel standing before a photo of his grandfather Kurt, who founded the company

Thomas Dobratz, the factory's workshop supervisor, first began work here around a quarter of a century ago.

Mathis Menzel, was then a little boy. Now in his mid-30s he runs the company that was first started by his grandfather in 1927.

This kind of long family relationship between factory and worker is common in German industry, says Menzel.

It's very common for people to spend their whole working lives in the same company, he says, which allows both skills and loyalty to be developed.

And the loyalty goes both ways. Good wages, between $45,000 and $70,000 (£30,000 and £50,000) a year for the average factory job - keep Menzel's workers loyal to his company. In turn, those workers' skills and experience keep Menzel loyal to them.

Even if he could hire workers for less money in other countries, he says, he's not tempted to outsource. Menzel believes it could compromise the quality of his products, and that quality is in high demand - one explanation as to why exports make up a whopping 50% of German GDP.

Six facts about the German economy

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  1. Average household (net-adjusted) disposable income per capita is $30,721. The OECD average is $23,938. (Source: OECD, Better Life Index 2014)
  2. Most taxis in Germany are Mercedes
  3. The working week in Germany also includes Saturday
  4. Two-thirds of the country's workforce are employed in the small-to-medium-sized, family-owned businesses called the Mittelstand
  5. Roughly 80% of all transactions in Germany are conducted in cash - the dominant form of payment even for large transactions (Source: Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data)
  6. The popularity of beer has long been in decline. In 1976 Germans drank the equivalent of half a litre a day. In 2012 it was only around a third of a litre.

That decision not to outsource his workforce is a firm rejection of the allure of short-term financial gain. And it's the kind of thinking that offers another insight into the principles that have helped both Menzel's factory and the wider German economy.

Menzel believes that the fact his company is family-owned - like a lot of German middle-sized ("Mittelstand") companies - means he is not beholden to shareholders' short-term demands.

It allows him to think in terms of decades, not quarters, he says.

But it's not all roses for German workers.

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Image caption The optimism of reunification in 1990 was tempered by the experience of many East Germans

After reunification in 1990, Germany decided on an exchange rate that swapped one East German Ostmark for one West German Deutschmark.

Politically, it may well have been the diplomatic solution.

But almost overnight, workers in East Germany's unproductive state-run factories became too expensive to employ. Their productivity lagged behind western peers, plants lost contracts and were soon closed.

This hampered growth up until Gerhard Schroeder introduced huge cuts to wages, benefits and social services 10 years ago. This saw the rise of the working poor, whose pay doesn't cover their cost of living.

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Image caption All smiles? Finance ministers Wolfgang Schaeuble and Yanis Varoufakis are at odds over Greek debt
Image copyright Getty Images
Image caption Germany's debt is rearranged in 1953

This also helps explain German impatience with other European countries, most notably at the moment, Greece. Many Germans feel they have had to make painful economic sacrifices to meet their political goals - so why shouldn't others, they ask.

"We had to shoulder the cost of reunification which was a big stress for the economy and we did it on our own," says Stefan Schneider, chief economist at Deutsche Bank.

"I think this might explain why Germans have limited patience when they say other countries [are] dragging their feet on reform."

But others would say German memories are short when it comes to debt forgiveness. The German post-war "miracle" might never have happened if Germany hadn't been let off half its post-war debts in 1953.

This is not lost on Yanis Varoufakis, the Greek finance minister, who said recently, "no one understands the Greece position better than the Germans". We'll see how true that is.

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Listen to more about Germany's economy on Saturday 14 February at 08:30 GMT on the BBC World Service

For more on the BBC's A Richer World, go to - or join the discussion on Twitter using the hashtag #BBCRicherWorld

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